MergeMinnesota
Nonprofit merger as an opportunity for survival and growth
Ron Reed, Project ReDesign, MAP for Nonprofits
Susan Dowd, Library Strategies Consulting Group,
The Friends of the Saint Paul Public Library
Acknowledgments
After 30 years of being involved in some way
with nonprofit mergers, our completion of
MergeMinnesota is like a dream come true. I hope
the reader will find this work as useful as I found
it rewarding to create. So many helpful hands and
minds went into its production. I would like to
thank everyone whom my limited space will allow.
First, I am very grateful to MAP and its Executive
Director Judith Alnes for giving me the opportunity to develop Project ReDesign. Her support and
guidance throughout this pilot project have been
immeasurable.
I thank Susan Dowd, co-author of MergeMinnesota
and a consultant for Library Strategies Consulting
Group, for her exceptional writing, editing and
constructive advice throughout the development
process. We are especially indebted to her for
her exemplary work on the Literature Search and
Review.
I thank Laura Ayers, consultant for The Center for
Organizational Development. Her thorough and
thoughtful work on the Expert Interviews has
added immensely to this project.
I also want to acknowledge former Project
ReDesign Director Suzanne Pearl, not only for her
work helping organizations merge during the first
two years of our project, but also for her initial
writing and editing of the Merger Tool Kit.
My thanks to graphic designer Becky Andrews for
using her fine talents to enhance the clarity and
usability of this publication.
I would also like to take this opportunity to welcome Renae Oswald-Anderson, Project ReDesign’s
new Director, to MAP for Nonprofits. I look forward to working with her as we expand this service to the community.
I want to recognize La Piana Consulting for their
extensive contribution in the area of strategic
restructuring. Their leadership, consultation and
written materials have proven invaluable to countless nonprofit organizations that are considering
major reorganization.
We thank our Project ReDesign Advisory Committee
for their support and guidance over the last two
years:
Emil Angelica, Community Consulting Group
Kate Barr, Nonprofits Assistance Fund
Ellen Brown, Community Volunteer
Heidi Neff Christianson, Moore, Costello & Hart
P.L.L.P.
Patricia A. Cummings, Jay and Rose Phillips
Foundation (retired)
Louise Dickmeyer, People Driven Performance
Jacqueline Hill, Christensen Hill, Ltd.
Elizabeth Johnson, Greater Twin Cities United Way
Steve Lassiter, Strategeries
Ken Middlebrooks, Land O’ Lakes (Retired)
Sondra Reis, Minnesota Council of Nonprofits
Carolyn Roby, Wells Fargo Foundation
Scott Stankiewicz, Mutual of America
Gretchen M. Stein, Ph.D., The Sand Creek Group Ltd.
We are immensely grateful to the following funders
that have provided ongoing support to Project
ReDesign:
The F.R. Bigelow Foundation
The Otto Bremer Foundation
The Greater Twin Cities United Way
The A.J. Huss Foundation
The John S. and James L. Knight Foundation
The McKnight Foundation
The Medtronic Foundation
Mutual of America
The Nicholson Family Foundation
The Jay and Rose Phillips Family Foundation
The Saint Paul Foundation
The Tozer Foundation
The Wells Fargo Foundation
Ron Reed, Consultant
Project ReDesign
MAP for Nonprofits
This publication was made possible though generous funding from The Wells Fargo Foundation and
The Greater Twin Cities United Way.
MergeMinnesota
Nonprofit merger as an opportunity for survival
and growth
Ron Reed, Project ReDesign, MAP for Nonprofits
Susan Dowd, Library Strategies Consulting Group,
The Friends of the Saint Paul Public Library
Copyright © 2009 by MAP for Nonprofits
Contents
Introduction 5
About this Publication 5
About MAP for Nonprofits 6
About Project ReDesign 7
What is Realignment? 8
Thinking about merger 11
The Pain is Deep 11
What is Merger? 13
Why Merge? 13
What Makes a Strong Merger Partner? 15
Common Merger Mistakes and How to Avoid Them 16
Project ReDesign’s merger model 19
Project ReDesign’s 10-Step Merger Decision-Making Process 19
Project ReDesign’s Merger Tool Kit 23
Merger implementation 35
Implementation Planning 36
Implementation Categories 36
Merger evaluation 37
Vignettes of nonprofit mergersin
Minnesota 39
Two Charter Schools 40
Two Community Development Organizations 40
Two Nonprofits That Wished to Broaden Services 41
Two Organizations Providing Mental Health Services 42
Appendices 43
Appendix 1 Experts Interviewed and Interview Questions 45
Appendix 2 Literature Review 47
Appendix 3 Full Bibliography 67
Introduction
About this Publication
I
n April of 2007, MAP for Nonprofits launched Project ReDesign—a
three-year initiative to help nonprofit organizations with organizational realignment, including mergers, program transfers, joint
operating agreements, joint ventures, parent-subsidiary relationships, and dissolution.
When we started Project ReDesign, we didn’t know that an economic downturn was around the corner and about to reduce every
income stream on which nonprofit organizations rely. We didn’t
know that the number of people in need would increase dramatically all across the community. And we didn’t know how many
organizations would need to awaken to the notion that mergers might be the best strategic path to preserve the services they
deliver to the community.
What we did know was that we wanted to help nonprofit board
members and nonprofit executives see that mergers and other
forms of realignment could be positive strategic opportunities to
promote organizational sustainability and preserve services. This
publication tells that story.
By familiarizing nonprofit leaders with the language and processes
that accompany organizational realignment, we hope that this
5
foreign territory can become familiar and less forbidding. Indeed,
we hope it strengthens awareness that realignment may be the
nonprofit sector’s best hope to continue serving the community
with fewer financial resources.
While we realize that organizations are working together in a variety of ways, such as sharing back-office functions, contracts for service, and formal collaborations, this publication primarily focuses
on nonprofit mergers. It is the result of three major areas of experience and investigation:
1. The experience of MAP’s and Project ReDesign’s team of merger
experts
2. Interviews with local and national experts in the area of nonprofit mergers
3. A search and review of current published literature about nonprofit mergers
The current economic environment and its challenges are inspiring many nonprofits to look at new ways of doing business, and
merger is becoming an increasingly popular option. We hope that
this resource will help readers begin to consider the benefits and
complexities of nonprofit mergers and to view them, not as evidence of failure in the present, but as opportunities for success in
the future.
Judith Alnes, Executive Director
MAP for Nonprofits
About MAP for Nonprofits
MAP for Nonprofits has provided innovative, high-quality, costeffective management consultation and support to Twin Cities nonprofit organizations for 30 years. In 1979, a group of leaders from
area corporations and community institutions joined in recognition
that the nonprofit sector needed more management help to build
a vital and healthy community.
MAP’S Mission: MAP unleashes the power of the nonprofit sector
in the community by increasing the capacity of individual nonprofit
organizations to achieve their missions and by providing leadership
for the effective management of the sector.
Today, MAP is a leading resource for management consultation
and board recruitment for nonprofit organizations across the Twin
Cities metropolitan area. MAP uses a combination of its own staff,
community consultants and volunteers to help more than 500 Twin
Cities’ nonprofits annually.
6
In January 2007, MAP teamed up with merger consultant Ron Reed,
retired CEO of Family Service of Saint Paul, who brought extensive
nonprofit merger experience to MAP. During his 28-year tenure
at Family Service, five nonprofits joined that organization. Later,
as an independent merger consultant, Reed helped several other
Twin Cities nonprofit organizations merge. Reed was invited to
join MAP’s staff and, together with MAP Executive Director Judith
Alnes, they developed a comprehensive new service. Thus, Project
ReDesign was born.
About Project ReDesign
Project ReDesign helps nonprofit organizations improve their sustainability through realignment, a term that describes many kinds
of formal collaborations. These collaborations include full merger,
as well as major organizational changes.
Project ReDesign encourages, guides and supports nonprofits that
are considering realignment by:
• Guiding a nonprofit organization through a continuum of
merger options, such as merger, program transfer, joint ventures or parent-subsidiary relationships.
• Providing resources and support to help a nonprofit organization think boldly, evaluate options, identify opportunities, communicate effectively and make sound decisions.
• Offering a merger model that consists of a 10-Step Merger
Decision-Making Process and a Merger Tool Kit for use
throughout the merger process. Project ReDesign breaks the
merger process into four phases: 1) Assessment, 2) Planning
and Decision Making, 3) Implementation and 4) Evaluation.
Together, Project ReDesign and MAP have the expertise to assist
with each and all of these phases of merger.
The funding challenges nonprofits have faced since 2001 have escalated to a firestorm today, and many nonprofits now must come
to terms with their worst financial times ever. However, there are
options for survival, and sometimes strength comes from combining the best of two or more organizations. Through merger facilitation, Project ReDesign and MAP can access the resources to help
guide nonprofits through the firestorm and survive the financial
and environmental heat.
7
What is Realignment?
“Realignment” is a broad term that describes multiple kinds of
organizational collaborations. While it often serves as a strategy
to address economic pressures, realignment is also a natural process that occurs as the nonprofit sector grows and matures. In
some cases, realignments are pairings of relatively equal organizations; in others, smaller organizations are folded into larger ones.
Occasionally, one organization assumes control of a second organization, but the two remain separate. In still other circumstances,
assets are transferred from one organization to another. The kind
of realignment that works best is determined on a case-by-case
basis by merger consultants, working together with the leadership
of the organizations. Below are brief descriptions of eight common
realignment options.
1. Administrative consolidation: Restructuring that includes the
sharing, exchanging, or contracting of administrative functions
to increase the administrative efficiency of one or more of the
organizations involved. Such functions may include accounting,
human resources, information and technology systems, marketing and purchasing, among others.
2. Consolidation: Combining separate organizations into a single
one. Consolidation differs from a merger in that a new entity is
created in the consolidation.
3. Joint programming: Restructuring that includes the joint
launching and managing of one or more programs to further
the programmatic mission of the participating organizations.
For example, a domestic violence shelter and a rape crisis services organization got together to form and manage a domestic violence offenders’ program, while continuing to operate
their existing organizations and programs independently.
4. Joint venture corporation: An integration that includes the creation of a new organization to further a specific administrative
or programmatic end of two or more organizations. Partner
organizations share governance of the new organization.
5. Merger: The integration of all programmatic and administrative
functions of multiple organizations, to increase the administrative efficiency and/or program quality of one or more of the
partners. They can also integrate to increase geographic reach
or achieve synergy between programs. Mergers occur when one
or more organizations dissolve and become part of another
organization’s structure. The surviving organization may keep
or change its name. A merger also occurs when two or more
8
organizations dissolve and establish a new structure that
includes some or all of the resources and programs of the
original organizations.
6. Parent-subsidiary: An integration that combines some of
the partners’ administrative functions and programmatic
services. The goal is to increase the administrative efficiency and program quality of one or more organizations
through the creation of a new organization(s) or designation of an existing organization(s) (“parent”) to oversee administrative functions and programmatic services of
other organization(s) (“subsidiary”). Although the visibility and identity of the original organizations often remain
intact in a parent-subsidiary relationship, some organizations involved in such restructurings consolidate to the
point where they look and function much like a merged
organization.
7. Program transfer: Occurs when one organization spins off
or transfers administration of one or more of its programs
to another organization.
8. Strategic restructuring: Occurs when two or more independent
organizations establish an ongoing relationship to increase the
administrative efficiency and/or further the programmatic mission of one or more of the participating organizations through
shared, transferred, or combined services, resources, or programs. Strategic restructuring ranges from jointly-managed
programs and consolidated administrative functions to fullscale mergers.
9
“We are seeing an
emerging trend of
world-wide scope
for nonprofits
and government
organizations to work
together.”
Peter Goldberg,
President and CEO,
Alliance for Children
and Families
Thinking about
merger
Nonprofit leaders have described the current
economic environment as “the perfect storm.”
“With financial
pressures from all
sides, coupled with
increased demand
Report, describes the
for services stemming
effect of the recession
from unemployment
on Minnesota nonprofits
as “unusually quick and
and housing problems,
sharp.” Revenues have
many nonprofits will
decreased as expenses
be hard pressed to
have increased despite
careful management.
keep up the juggling.”
The report recommends
Kate Barr, Nonprofits
that nonprofits be “nimAssistance Fund
ble and open to alternatives.” It concludes,
“Nonprofit organizations will need to make
strategic choices about their own operations,
including reductions in staff, possible mergers or even dissolution. And they will seek
to minimize negative impacts on the people
they serve.”
The Pain is Deep
O
nce somewhat insulated against economic challenges because of the strong
and generous philanthropic community that
the Twin Cities enjoys, local nonprofits are
experiencing this crisis as intensely as those
anywhere. It is not an exaggeration to call
the present time the greatest financial crisis
most nonprofits have ever known.
Government funding has been cut back
or eliminated, and corporate dollars have
shrunk. Individual giving has fallen dramatically for many nonprofits. In December
2008, the Minnesota Council of Nonprofits
(MCN) conducted a survey to better understand the effect of the economic situation
on state nonprofits. The survey reached
nearly 2,000 member organizations. MCN
wanted to learn how nonprofits are being
impacted by the recession and how their services will ultimately be affected. The report
on that survey, Nonprofit Current Conditions
Challenges are all too apparent on the giving
side as well. A 2009 Outlook Report released
by the Minnesota Council on Foundations
(MCF) in early January 2009 states that 40%
11
“This is not about big.
of Minnesota grant makThis is about better.”
ers anticipate a decrease
in giving in 2009. An
John Stumpf, President
equal percentage expect
and CEO, Wells Fargo
their giving to remain
& Company
flat. Foundation support will be affected into
2010 and beyond due
to the use of multi-year
rolling averages to compute the funds available
for grants. In an effort
to assist nonprofits in
other ways, foundations and corporations
are exploring broader methods of support,
such as increasing in-kind giving and offering
other non-monetary assistance.
by organizations that assist with food, housing, employment, human services and youth
development. The MCN survey report mentioned above describes the situation nonprofits are facing as “having to do less with
less,” that is, feeling forced to scale back
services because of revenue challenges. The
table below illustrates some of the MCN survey findings.
One result of organizational stresses has
been a new awareness that “business as
usual” can no longer be assumed. Indeed,
tougher economic times have served as a
resounding wake-up call to many nonprofits that have never before considered doing
business differently, and merger is becoming
an increasingly common strategy. The last
decade has witnessed a surge in the number of nonprofit mergers around the nation.
While hard data supporting this statement is
hard to come by (the IRS does not track nonprofit mergers), anecdotal evidence from the
public sector overwhelmingly supports it as a
national trend. There are more than 1.5 million nonprofits in the U.S. today, all of which
face an environment of fierce competition
And the greatest challenge of all? These
changes have occurred during a time of
increased demand for the services of nonprofits across the Twin Cities, state, and nation.
Results of the MCN survey indicate that
42.4% of nonprofits experienced increases in
demand for their services in 2008, increases
that, in some cases, have proven difficult to
satisfy. These increases were felt most acutely
Minnesota Council of nonprofits current conditions report
(December 2008)
54.5%
49.2%
47.4%
42.4%
Decline
in total
revenue
Increase in
expenses
Decline in
individual
contributions
12
Increase in
demand for
services
8.6%
7.6%
Decline in
volunteers
None
for shrinking resources. Clearly, the next few
years are going to bring about real changes
in the nation’s nonprofit universe.
to deliver on their missions and increase the
depth and scope of services they provide. By
realigning staff, personnel can be allowed
to specialize, maximizing strengths and
eliminating the need for staff to operate as
generalists.
In the true spirit of viewing challenge as
opportunity, nonprofits, including those in
the Twin Cities, are examining a number of
realignment options, including merger, as a
way to improve services and/or ensure survival. Project ReDesign’s mission is to guide
this examination and, if merger appears to
be the right course of action, to assist with
that transition. In the past five years, local
nonprofit mergers have also accelerated at a
record pace, led by large national organizations such as The United Way, American Red
Cross, Big Brothers/Big Sisters, scouting organizations, and others. In fact, the Greater
Twin Cities United Way (GTCUW) has supported about two dozen mergers in the last
five years through planning and/or implementation grants.
Organizations that consider merger usually
do so for several reasons:
To better pursue a mission and
deliver services more efficiently
Nonprofit organizations share a goal to provide the best services in the most efficient
manner possible and practice careful stewardship of their resources. When two nonprofits share a common mission and provide
similar or overlapping services, they face the
problems of service duplication and confusion in the eyes of clients and donors.
Merging streamlines service delivery, eliminates duplication and waste, and solves this
confusion of identities.
What is Merger?
To improve skill sets and grow
strategically
A merger is the combination of two or more
separate organizations into one legal entity.
Program, administrative, and governance
functions are all combined.
Nonprofits are not created
equal. They bring widely
different skill sets to their
communities. When two
nonprofits identify critical strengths in differing
areas (service delivery and
fundraising, for example),
they may decide to merge.
In that way, combining
their strengths—and,
consequently, ceasing to
compete for funding dollars—becomes the best
way to expand their services and pursue a vital
future for both.
Why Merge?
Unlike nonprofit mergers of the 1970s and
1980s, mergers in the last 15 years have
become increasingly values-driven, fueled
largely by mission and common vision rather
than by the financial crises that characterized
nonprofit mergers in earlier years. Today,
many nonprofits find they can take the best
of their respective programs, governance,
management styles and organizational cultures and create a new and more successful
merged organization. In addition, mergers
can strengthen the organizations’ abilities
“Mergers are about
melding missions,
thereby allowing the
combined entity to
pursue a common
purpose with greater
stability. Mergers
become the ‘rebirth’
of an organization,
rather than the death
of a mission.
Dan McCormick,
CEO, The McCormick
Group
13
“A great percentage
of mergers result in
an increased ability
to deliver services
Look at the strategic, organizational, and
financial questions below. Are they relevant
to your nonprofit’s situation? If you can
answer “yes” to several of these questions,
perhaps merger is an option worth further
investigation:
To improve the
financial outlook
and improve
sustainability
more broadly or more
Merging can help a
struggling nonprofit
achieve a more even
Bob Harrington,
cash flow, gain access to
Director, Strategic
new capital, and foreRestructuring Practice,
stall potentially fatal
La Piana Consulting
collapse. A smaller nonprofit with a strong
program but unsteady
finances may see an
advantage in merging
with a larger organization that has a solid
funding base, but does not offer a program
comparable to that of the smaller organization. In this case, the smaller nonprofit’s
excellent program can continue with a better
likelihood that the costs of that program can
be met. In addition, merging can enhance
the essential infrastructure of a nonprofit
that has had to cut back on resources such as
staff and technology.
efficiently.”
• Does your strategic plan call for adding
or expanding services, including geographic or demographic expansion?
• Are you looking for a way to gain new
skills and/or improve your organization’s
infrastructure?
• Are there services that you do not currently provide that would be complementary or enhance your current services to
clients?
• Are you losing a founder, an executive
director, or experiencing other turnover
at the executive level?
• Does your organization have a culture of
risk-taking, growth, or an entrepreneurial spirit?
• Do you have close partnerships or alliances that might lead to merger?
Merger, then is more than a life preserver for
struggling nonprofits. It can also be viewed
as a strategic option that can ensure continuation and/or enhancement of services. A
recent study, the Tropman Report, November
2007, that asked participants why they considered merger revealed that a majority did
so “to increase their organization’s reach or
mission impact.” The community also benefits from well-planned and executed mergers that result in stronger services. Scarce
resources can be used more effectively and
efficiently, services can continue, and nonprofits can become more sustainable.
• Does your organization sometimes
get confused with another, similar
organization?
• Is it difficult to recruit and/or retain
board members, or are your board members burned out and looking to step back
from their current levels of involvement?
14
What Makes a Strong Merger
Partner?
• Are you experiencing difficulty retaining
middle management and other key staff?
• Have you had to reduce your infrastructure, such as technology, marketing or
accounting functions?
Often, merger partnerships begin with something very simple: a relationship. Out of that
relationship emerges a conversation between
two (or more) nonprofits that may already
know each other well, have worked together
before (perhaps in joint programs), and value
working with other organizations. Their conversation evolves into “merger exploration,”
which refers to all the activities leading up to
a board’s vote to complete a merger.
• Have you experienced a steep increase in
overhead/administrative costs?
• Have you lost a funding source, or is this
likely in the near future?
• Are your fundraising efforts inadequate to
meet across-the-board organizational cost
increases?
The most successful mergers grow out of
previously-established relationships.
• Do you have a strong program component
but continuing challenges supporting it?
• Are you annually budgeting uncommitted
revenues?
In the November 2007 Tropman Report:
Nonprofit Mergers: An Assessment of
Nonprofits’ Experiences with the Merger
Process, researchers found that in over half of
the cases (57%), the potential partners had
“substantial involvement” with each other
prior to the merger exploration. Most frequently (75%), those relationships involved
“a program alliance or collaboration.” This
finding parallels an earlier Tropman study
that found that “sustaining an even less formal collaborative project requires a strong
level of awareness and trust between participating organizations.”
• Are you continually losing potential dollars to other nonprofits with similar
services?
• Have funders indicated that they would
like to see your organization merge? Have
they offered to provide funding to do so?
Interestingly, the 2007 Tropman Report also
found that the majority of merger explorations result in a successful outcome, even if
those explorations don’t result in two organizations joining to form a new legal entity.
In this study, merger explorations resulted in
a formal merger in nearly three out of four
cases (71%); but for the 29% of organizations that did not merge, most viewed the
merger exploration process as “worthwhile
and helpful in further clarifying and reinforcing the missions of the organizations.”
“Imagine new partners or
a merger, or a new way to
deliver services.”
Judith Alnes, Executive
Director, MAP for Nonprofits
15
Common Merger Mistakes
and How to Avoid Them
2. Underestimating the importance
of organizational culture
As an organization evolves over time, it faces
the challenges of integrating individuals into
an effective whole, while adapting effectively
to the external environment. As the organization finds solutions to these challenges, it
engages in a kind of collective learning that
creates the set of shared assumptions and
beliefs we call culture. That culture informs
the style and practices of the organization,
as well as its value system, and no two organizations share exactly the same culture.
Evidence overwhelmingly shows that culture
can be among the most difficult aspects to
align. Failure to integrate cultures and, in
fact, to create a new culture that works for
everyone, can derail the merger process.
Project ReDesign’s experience, along with
that of the experts and information from our
literature review told us that many of the difficulties encountered during the merger process fall into these categories:
1. Underestimating the importance
of communication
Communicate, communicate! Effective communication sets appropriate expectations,
maintains credibility, and reinforces good
will among staff and supporters during all
phases of the merger process. Having a careful, strategic communication plan in place
will help reduce both internal and external
resistance and manage fears about job loss,
salary reductions, changes in supervision,
and other alterations that workers feel are
beyond their control. Without such a plan,
it can be difficult for employees to view the
merger in a positive light. Rumors will spring
up, and some individuals’ natural tendency
to become “territorial” will become evident.
High levels of communication are important
even long after the merger has closed. Poor
communication at any phase of the process can derail success
as quickly as any other
aspect of this complex
undertaking. When cre“The leadership has to
ating messages and dismotivate the staff to
seminating information,
it is imperative that
buy into it. Finally, it
merging organizations
will be individual staff
prevent misinformation
members who have to
and drama.
Understanding and melding two distinct
organizational cultures is a top priority.
Therefore, investigation that results in the
acknowledgment and understanding of
each party’s organizational culture must be
included whenever merger is under consideration. Where cultures are dissimilar, experts
advise creating an intentional process for
determining what culture is desired, then taking specific measures to create cultural cohesion for the newly-merged board and staff.
do this work.”
Emmett Carson,
President and
CEO, Silicon
Valley Community
Foundation
16
By underestimating or underfunding the real
costs of a merger, too many nonprofits and
funders pay the price later in discord, distractions and drama, along with the loss of
valuable time, money and good will. In addition, when it is assumed that cost savings will
result and they do not, merging organizations and funders become disillusioned and
consider the effort unsuccessful. As a result,
an organization can ultimately lose funding as a direct result of the merger, thereby
creating a significant disincentive for other
organizations to explore merger.
3. Underestimating the timeline
A timeline, first and foremost, must be realistic. Mergers will always be more complicated
and take longer than the parties presume
when entering into the process. It typically
takes 9-18 months to successfully negotiate a
merger, although some mergers require even
more time. If the merger timeline becomes
elongated due to ineffective management of
the process, consulting costs will rise, such as
those for legal and financial due diligence.
Involving middle management and staff, not
just the board and executive, is important.
While mergers may start from the top and
work down, they must be successful from the
ground up.
Funders play an important role
Enlisting the help of the funding community
is essential when going through a merger
because the cost of the merger process can
be a huge obstacle to the very organizations
that might benefit from it the most. Funders
can provide direct assistance to organizations
engaged in restructuring by offering workshops and incentives, training consultants,
and by providing direct financial support.
4. Underestimating costs
Hard costs most frequently underestimated
include the costs for facilitation, legal advice
and filings, cultural assessments, human
resource audits, communications and printing, web content and redesign, signage, and
additional infrastructure and/or technology.
Nonprofits also underestimate the increased
and accrued human resource benefits/costs,
along with rent increases and other changes
in their leasing contracts.
Mergers almost always cost more and take
longer than anticipated.
The experts interviewed by Project ReDesign
included an individual from the Twin Cities
who told us, “Foundations are in a unique
position to be able to see overlaps between
nonprofits across sectors and issues. They can
share knowledge across foundations, from
the staff to the board levels via the Minnesota
Council of Nonprofits (MCN) and Minnesota
Council on Foundations (MCF). They can create a joint approach that draws upon their
respective giving priorities and strategically
contributes to a community-wide strategy.”
In addition to hard costs, there are opportunity costs that must be considered, and these
can be significant. It is easy to miss funding
and other opportunities when an organization is inwardly-focused. Organizations must
attend to external opportunities while going
through the merger so that competitors cannot gain an advantage in community buy-in
and funding.
17
The experts we interviewed offered a number of specific recommendations for funders.
They recommend that funders consider the
following strategies:
mergers, because they are complicated, confusing, and highly-technical, require the assistance of an outside expert, a consultant, who
will help develop this plan. The consultant will
facilitate each step and assist the organizations in avoiding the pitfalls, like those listed
above, that threaten to derail the process and/
or greatly increase the cost. A capable consultant will set the right tone from the beginning (what can be accomplished together)
and right the balance between agencies of
differing perceived and/or actual financial
power. In addition, the external project management and facilitation that the consultant
provides frees organizational leaders to focus
on what is right for the social purpose of their
nonprofit and lessens turf battles.
• Bring organizations together in one place
and create shared goals and guidelines.
• Collaborate with other funders to create
an effective environment that promotes
exploration and avoids disincentives to
merge because of a fear of losing funding potential.
• Create a “pool” of funding that supports
Project ReDesign’s efforts as an incentive to create capacity improvements in
mission delivery. This would be a Phase
II effort for Project ReDesign to add to
the (currently) relatively small universe of
knowledge about mergers, and to provide access to a valuable option.
• Consider structuring loans (or supporting
agencies that provide nonprofit loans,
critical junction financing, and/or program-related investments [PRIs]).
• Support Project ReDesign in presenting
more educational opportunities to learn
about strategic options.
5. Underestimating the complexity
of the merger process
Careful planning cannot be overemphasized,
and for a nonprofit merger to be successful,
it is essential that leadership put a structured
plan in place early in the process. This plan will
include executive and name identification,
due diligence, board and governance structure, integration of staff and systems, communication, analysis of organizational cultures,
and legal and financial considerations. Most
18
Project ReDesign’s
merger model
Who makes the decisions about a merger?
T
Project ReDesign’s
10-Step Merger DecisionMaking Process
he assessment, planning, and decisionmaking phases of the merger process
require a carefully structured plan and professional guidance. Project ReDesign’s experience in merger assessment and track record
with the complex negotiations and decisionmaking that follow an agreement to explore
merger has led to the development of a
Project ReDesign model. The model that follows consists of two important pieces:
MAP’s plan outlines ten distinct steps to
the merger process. These steps are linear
and involve the development of a leadership team that drafts initial documents, a
joint committee that reviews and approves
those drafts, and legal reviews that result
in an eventual recommendation for merger.
At that point, work begins on drafting the
actual Plan of Merger and seeing that Plan
through to approval and legal filing.
• Project ReDesign’s 10-Step Merger
Decision-Making Process
• The Merger Tool Kit—specific tools and
recommendations for completing the
10-Step Merger Decision-Making Process
This 10-step process developed by Project
ReDesign combines the expertise of merger
consultants with those who know the organizations best, their leadership.
19
Common Understandings examines foundational issues, any one of which might be a
deal breaker. For example:
STEP 1
Initial assessment meeting with
executive directors and/or board
chairs
• Which organization will survive?
While partnerships may begin with conversation, they quickly require a more formal
process in order to advance. An initial assessment meeting involving key leaders (executive directors and board chairs) from both
nonprofits, along with Project ReDesign’s
expert merger team, is intended to move the
discussion to a deeper level. Its purpose is to
begin to articulate the likely advantages and
challenges of a merger, and to determine its
potential for success. At that meeting, participants look at their organizations’ histories
and their experience of working together.
How strongly have they collaborated in the
past? How successful have those collaborations been? Can they articulate a vision for
a merger? Are they ready to provide leadership for the merger process?
• What will the newly-merged nonprofit
be named?
• How will the newly-merged nonprofit be
governed (board and membership)?
• How will executive leadership be
determined?
• How will financial challenges be met
(including the cost to implement the
merger)?
• How will the success of the merger be
measured?
In addition, the leadership team will begin
“Making the Case” for merger, utilizing this
document in the Merger Tool Kit as well. In
drafting MAP’s Making the Case document,
the team will take up the details and hard
questions that are intended to reveal the
complexities, strengths, and possible pitfalls
of a merged organization. With this draft,
they will begin creating the framework for
the merged organization. In order to do so,
they will have to address questions such as:
Step 2
Leadership team meets to develop initial
drafts of “Common Understandings” and
“Making the Case.”
The leadership team members will include
the executive directors and possibly the
board chairs who took part in the initial
assessment meeting
with Project ReDesign’s
merger experts. This
“Mergers are becoming
team will function as the
workhorse. Its charge will
a strategic option
be to draft a document
for dealing with the
MAP calls “Common
nonprofit management
Understandings,” one
st
of the key tools in
challenges of the 21
the Merger Tool Kit.
century.”
• What will this new organization’s vision
and mission be?
• How will it promote excellence?
• What new markets and services might
merger open up?
• How will economies of scale be realized?
• Why is this the right time to merge?
• How will the community benefit?
• How will funders benefit?
Thomas McLaughlin,
Adjunct Lecturer,
The Heller School
for Social Policy and
Management, Brandeis
University
• How will the newly-merged organization
benefit?
• How are these two organizations alike?
• In what ways are they different?
20
Step 3
Step 5
Each board of directors passes
resolution to “intend to merge”
and appoints members to a joint
committee.
Legal review of both organizations is
conducted.
The purpose of this step is to focus on potential legal issues that might shape the merger
process and/or the merger itself. Merger is,
by definition, a legal process whereby one
organization is legally dissolved while the
other survives. Occasionally, both organizations legally dissolve and form a new legal
entity.
Board voting can take time, but the process is aided by the work the leadership
team will have done in developing the first
drafts of the “Common Understandings” and
“Making the Case” documents. These documents will help board members understand
the advantages and potential difficulties of
merging, and they help pave the way toward
understanding and a vote to further explore
merger. Once this “intend to merge” vote is
complete, the boards will assemble a joint
committee. While the leadership team’s job is
to develop a plan, the joint committee serves
as an oversight committee for the plan.
In order to further assist the governing
boards of the merging organizations determine whether to recommend merger, due
diligence reviews must be undertaken.
One nonprofit merger attorney and author
describes this step as a kind of “legal audit.”
Merging nonprofits begin conducting a comprehensive examination of the other party’s
legal status and risk—incorporation, contracts, claims or litigation, human resources,
benefits, real estate, etc. A “Due Diligence
Checklist for Minnesota” is included in MAP’s
Merger Tool Kit. It outlines the major areas
for legal review. The completion of this
checklist will ultimately require the professional services of an attorney experienced in
nonprofit law.
Step 4
Joint committee meets as needed
to review and approve “Common
Understandings” and “Making the
Case.”
The joint committee is usually made up of
the leadership team, plus two or three members from each organization’s board of directors. This committee’s job is to use the early
drafts of the “Common Understandings”
and “Making the Case” documents to work
out the smallest details of a possible merger.
The joint committee may send both documents back to the leadership team to refine
as needed. Eventually, these documents must
be finalized so that they can be presented to
both boards of directors for those directors’
formal vote on whether or not to recommend merger.
Step 6
Joint committee presents
recommendation for merger, based
on “Common Understandings”
and “Making the Case,” to boards
of directors. Boards approve
recommendation.
The joint committee’s hard work culminates
at this step, the point of decision, to formally
recommend merger or not. Sometimes both
boards meet simultaneously for this vote,
although this is not always possible. One
nationally known nonprofit merger consultant recommends that, in a situation where
21
one board might be more reluctant to proceed than the other, the reluctant board
should meet first, to spare the other board
the embarrassment of being “left at the
altar.” If both boards approve a merger recommendation, developing a Plan of Merger
will be the next step in the process.
Step 8
Step 7
Each board of directors approves the
Plan of Merger.
The Plan of Merger also sets forth new
Articles of Incorporation and Bylaws. It may
also contain other directives, such as specifications of initial directors and their terms of
office.
The Plan of Merger is drafted.
The Plan of Merger is the formal legal document developed above. Ideally, both boards
should approve the Plan within 45 days of its
completion in order to prepare it for submission to the Secretary of State.
The “Plan of Merger” is a legal document
that eventually will be submitted to the
Secretary of State.
It outlines the terms and conditions of
merger, addressing:
Step 9
Membership approves the Plan of
Merger.
• When the merger takes effect
• Which organization survives
In the case of an organization that has a voting membership in addition to a board of
directors, its membership must also approve
the Plan of Merger.
• What the new organization will be
named and where it will be located
• How the new organization will be
governed
Step 10
It specifies how financial resources will be
managed, such as:
Submit legal filings.
The combined organization’s attorney will
handle all legal filings and the transfer of
assets. Minnesota requires that, if both
merging organizations are 501(c)(3) nonprofits, the combined organization’s Articles
of Incorporation must be filed with the
Secretary of State’s office. If one of the merging organizations is not a 501(c)(3) nonprofit,
an additional step must be taken: a notice of
merger must be filed with the State Attorney
General’s office. (Articles of Incorporation are
still filed with the Secretary of State.)
• What will become part of the new organization’s general operating funds
• What is restricted
• What happens to assets and liabilities
• How gifts and grants will be transferred
to the new organization
“Even before the ink has dried on the merger
documents, celebrate! Celebrate as boards, staffs,
leaders, and a community. Celebrate and hail the
good work of the organization and the people who
brought to fruition a good and valuable effort”
Louise Dickmeyer, People Driven Performance
22
Project ReDesign’s Merger Tool Kit
VC
Mergers are not a new phenomenon. Many
Minnesota nonprofits have merged throughout their histories, sometimes multiple times.
MAP developed a list of Minnesota nonprofits that have merged in recent years and was
interested to discover more than 50 mergers on the list. Clearly, mergers have been,
and still are, part of the fabric of Minnesota
nonprofits.
process, it is important
to remember that mergers require a strategically structured process.
As one expert stated,
“They are not for do-ityourselfers.” In fact, this
is a point on which most
experts agree:
Mergers are complex undertakings with
many points of challenge and potential failure. They are almost always time-consuming,
both the length of time required to complete
a merger, and the amount of time that board
and staff must devote to the undertaking. In
addition, they can be costly. Mergers entail
many one-time costs, everything from legal
fees and letterhead to the integration of
multifaceted technology.
Largely through the efforts of Project
ReDesign, MAP for Nonprofits has developed seven proven tools that accompany the
10-Step Merger Decision-Making Process.
These tools make up Project ReDesign’s
Merger Tool Kit and help guide the nonprofit merger process from initial dialogues
through the approval of a merger plan and
the filing of all legal documents required to
complete the transaction in Minnesota.
Individuals involved in merger planning
frequently describe the process as a “roller
coaster ride.” One day everything looks
smooth; the next day it seems to fall apart.
Common struggles include agreeing on a
new board structure, leadership, headquarters site, and even the merged organization’s
name. To minimize the ups and downs of the
Merger
Tool Kit
Most successful mergers require a clear plan
and the aid of competent outside assistance.
“Getting to and
through mergers isn’t
easy. Institutional
leaders have to give up
some institutional pride
and control to make
them work.”
D7GWUix
23
Scott Russell, author
of Putting Good Will
to the Test, MinnPost.
com, June 23, 2008
D
Tool 1 Merger Best Practices
These guidelines help ensure that the merger process is conducted
with the highest standards.
• Focus on mission and the best interest of those we serve.
• Create a clear vision that will guide the newly-merged
organization.
• Involve people who will be affected in the process.
• Create a strong board and solid staff leadership.
• Deal with key issues early and directly (use “Common
Understandings”).
• Pay attention to organizational culture and integration issues.
• Involve outside consultants and attorneys who have experience
in nonprofit mergers.
• Have a clear, organized decision-making process (a merger
model).
• Develop a communications plan.
• Have a realistic funding plan.
• Have a recommended date for merger completion.
• Have measurements in place to determine merger success.
“Many nonprofit
board and staff leaders
are exploring merger
in order to best meet
the needs of their
community, their
organization and those
they serve.”
Ron Reed,
Consultant, MAP for
Nonprofits, Project
ReDesign
24
7
Tool 2 Common Understandings
“Common Understandings” are the most basic agreements that must
be addressed early in the discussion/negotiation process. While every
potential merger brings with it different circumstances and a variety
of Common Understandings, certain questions are basic to all merger
discussions. Upon these Common Understandings rest the eventual
recommendations to the board and the future of the merger.
1. What is the vision for the merger?
3. What will the new organization be named?
This question does not ask what the vision
of a merged organization will be. Instead, it
asks what vision will guide the merger process. What will a merger mean to both organizations? How will it affect programs and
service delivery? How will joining together
benefit the community? How will it benefit
funders?
This deceptively simple question is often one
of the most emotional. An organization’s
name, like a person’s name, is an integral
part of its history, reputation, and identity.
While the issue of a name does not have
to be definitively resolved as part of the
Common Understandings, each organization must recognize at this early stage that
the new post-merger board will immediately
wrestle with this decision. Sometimes the
surviving organization’s name becomes the
name for the new organization. Sometimes
the newly-merged organization assumes a
new name completely. Often the question
of a name occupies the new board members
for some period of time after the merger is
finalized.
For example, when a nonprofit family services agency merged with one that provided
adoption services, the vision for the merger
was that “the enhanced excellence of a combined child and family serving agency will
benefit the community and those we serve.”
2. Which organization will be the survivor
and which will be dissolved?
4. How will the new organization be
governed?
In most nonprofit mergers, one organization
is folded into another one. One is dissolved;
the other survives. Occasionally, both individual nonprofits dissolve and become one new
organization. In a third scenario, a parentsubsidiary relationship is formed whereby
the parent organization controls the subsidiary through governance, but they do
not formally merge into a single combined
nonprofit organization. Project ReDesign’s
merger experts can evaluate each potential
partnership situation and help the nonprofits
determine which course of action is the best
in their circumstances.
The composition of the new board of directors must be determined early in the merger
negotiation process. In many merger cases,
the new board of directors is formed by joining the two boards into one. This is the optimal solution in most circumstances.
In other cases, an optimal board size is
agreed upon, and the bylaws are amended
to reflect this directive. (For example, there
might be three board openings available to
the directors of the dissolving organization.)
Occasionally, organizations develop an advisory committee structure.
25
5. What will the membership criteria be for
the new organization?
The number of staff hours required to take
a merger from exploration to completion is
often overlooked or not calculated when
determining merger expenses. Mergers
require not only the executive director’s time,
but also that of the management team, support staff and others.
This step is a point at which both boards
can review the effectiveness of their current membership policies and practices and
decide how they will proceed in the future.
Some organizations may find that having
additional members may not be in their best
interest.
Some of the areas that must be considered
when determining potential merger costs are:
• Public Relations and Marketing
6. How will the executive director be
determined?
• Technology Integration
Determining an executive director is a critical
first step in the merger negotiation process.
In fact, it is one of the most important decisions to be made. In many cases, the executive director of the surviving organization
becomes the leader of the newly-merged
organization. Whatever the decision, it is
extremely important that merger planners
do not proceed very far until they have a
process in place for determining executive
leadership.
• Human Resources
• Accounting Integration
• Facilities Management
• Fundraising
• Program and Staff Administration
• Consulting Fees
9. What will the timeline for the merger
process be?
A timeline is a crucial roadmap for the merger
process. It is important that a timeline be realistic. While both organizations would like
to see negotiation progress smoothly and
swiftly, that rarely happens, even in the best
of circumstances.
7. Where will the new organization’s
headquarters be located?
Location and other physical space issues must
also be part of Common Understandings.
Often, all staff will be combined in the
offices of the surviving organization. In other
circumstances, a new headquarters location
will be required.
Among the decisions that dictate the merger
timeline are the frequency of joint committee
meetings, the merger communication plan,
and the target merge date.
8. What will a merger cost?
The cost of a merger depends on the size
of the organizations, the complexity of the
realignment, the ability of staff and leadership to take on extra work, and many
other factors. Project ReDesign can provide cost estimates on a case-by-case basis.
Usually, because mergers can be costly, third
party funding is required to see the process
through to completion.
All the literature on nonprofit mergers and all
the experts who have expressed an opinion
on merger timelines agree: mergers almost
always take longer than anticipated.
26
G
Tool 3 Making the Case
This tool takes the organizations to a deeper level of thinking. It
requires both organizations to articulate the vision for the merger,
the reasons, and the internal and external benefits of merging. It
also requires that both look closely at their similarities and differences. These extend beyond the obvious compatibilities such as programs and funding to their histories, their stewardship of community
resources, their work ethics and their willingness to take risks.
• To achieve positive outcomes
The questions below are intended to guide
potential merging partners through a deeper
level of articulation. They examine the
vision for the merger, established as part of
Common Understandings and ask the question, “Why merge?”
○○ Increased effectiveness
○○ Better service delivery
○○ Expanded programs
○○ Economies of scale
○○ Sharing administrative functions and costs
1. Why merge?
○○ Elimination of duplicate services
The reasons for merging will differ from one
nonprofit organization to another, but some
common reasons for merger are:
○○ Greater visibility and influence
○○ The opportunity to affect public policy
○○ The potential to increase resources
• To promote excellence
○○ The ability to engage in valuable
partnerships
○○ Retain and attract talented staff
○○ Increase the ability to support and recognize staff
○○ The ability to measure effects and
merger success
○○ Provide opportunities for networking
and building expertise
2. Why merge now?
Timing may not be everything, but in merger,
as in many other endeavors, it is extremely
important. Some reasons for timing of a
merger might be:
• To align with an overall business strategy
○○ Increase volume and/or capacity
○○ Reach new markets (geographic, demographic, etc.)
• Because the community needs span an
organization’s geographic boundaries.
○○ Provide new services and programs
○○ Increase the potential to raise financial
support
• Because combining forces provides potential for stability and growth in meeting
current and emerging needs.
• To achieve financial stability
• Because funders expect nonprofits to consider merger as a way to reduce duplication of services, provide economies of
scale, deliver services more efficiently, and
bring them the best possible return on
their investment in the community.
○○ Achieve economies of scale
○○ Build infrastructure
○○ Survive in a competitive funding
environment
27
• Because when the economy picks up,
workforce issues will be a priority. A
merged entity will be more attractive to
potential employees and promote better
retention.
4. How can organizational compatibility be
assessed?
Organizations whose cultures are collaborative lend themselves to the most successful
mergers. Compatibilities are relatively easy
to assess. Some examples of characteristics
that help indicate compatibility are:
3. Who benefits?
When two or more nonprofit organizations
merge, the effects of that decision have both
internal and external impacts. Internally, the
management, culture and work environment
may change. Externally, the community and
funders will be impacted by nonprofit mergers. Possible benefits may include:
• Parallel history with similar mission, values, and commitment to service
• Staff
• Investment in technology
• Similarity in board structure and function
• Solid reputation as professional, responsibly-managed organizations
• Accountable, solid financial condition
○○ Room to be creative
• Similar funding streams
○○ Enhanced career opportunities
• Compatible programming
• Similar accreditation standards
• Community
○○ Greater geographical accessibility and
professional expertise
5. What is organizational culture?
Culture is everything that surrounds the
workplace—the values, attitudes, behaviors
and artifacts define and significantly influence how an organization operates. Merger
partners each have their own culture. The
goal is to create a new one together.
○○ More partnerships with other agencies,
employers, and government programs
○○ Expanded public policy initiatives that
support community needs
○○ Stronger organization due to
collaboration
Organizational culture is sometimes overshadowed by financial, legal, programmatic
and staff issues when nonprofit merger
exploration is undertaken, but its importance should not be underestimated. It has
the potential to make or break the merger.
• Funders
○○ Combined, efficient fundraising effort
○○ Expanded geographic and program
reach of dollars contributed
○○ Combined resources and expertise
“A well-executed merger of two organizations with
complementary missions, values and strengths can
achieve economies, efficiencies and synergies that
few organizations can achieve alone.”
Ron Reed, Consultant, MAP for Nonprofits,
Project ReDesign
28
W
Tool 4 Due Diligence Checklist for Minnesota
Due diligence is a critical step that examines a potential merger
partner’s structure, policies, filings, and other legal matters that
could derail the merger process.
Due diligence is a kind of “legal audit” that
requires full disclosure, followed by an objective evaluation of any financial or legal risks
of combining the two (or more) organizations. One nonprofit merger attorney who
writes extensively about this subject says
quite simply, “Due diligence offers protection.” A key reason for a careful due diligence review is to avoid personal liability on
the part of directors or others involved in
negotiating a nonprofit merger. It requires
the counsel of an attorney experienced in
nonprofit mergers.
3. Research any outstanding liens,
lawsuits, liabilities of the other
organization, which could include:
o Worker’s Compensation Insurance
o Other employee claims (OSHA, EEO,
unemployment, etc.)
o Directors and Officers Insurance (or lapse
thereof)
o Outstanding lawsuits or possible lawsuits
involving the organization
4. Determine whether the other
organization has completed the
required filings and notifications to
government regulators.
This checklist below is intended to cover most
of the legal aspects of merger. It lists documents that must be filed with the State and
Federal governments, points out internal and
external issues that could affect either organization’s ability to merge, and examines the
financial situation of each (although it is not
an audit).
o IRS 990 forms for three (3) previous years
o Annual renewals with Minnesota
Secretary of State
o Annual Attorney General reports (if
required)
o Program licensing
o Government grant reports
1. Review governing structure of the
other organization.
o
o
o
o
5. Examine finances of the other
organization.
Articles of incorporation
Bylaws
IRS Determination Letter
1023 Application Form
o Review funding sources
o Government funding
o Corporate and foundation support
o Individual donors
o Grant requirements
o Common donors
o Review financial information
o Audits
o Current financial statistics
o Board financial policies
2. Review internal policies of the other
organization.
o Personnel policies
o Operations/financial policies and
procedures (identify organization’s
certified public accountant and other
outside professionals)
o Insurance policies
29
U
Tool 5 Sample Confidentiality Agreement
This Sample Confidentiality Agreement between MAP and its
merger clients protects information that must be kept private.
Confidentiality Agreement
It is understood and agreed to that the below
identified discloser of confidential information
may provide certain information that is and
must be kept confidential. To ensure the protection of such information, and to preserve
any confidentiality necessary under patent
and/or trade secret laws, it is agreed that
Nonprofits; (c) is rightfully received by MAP
for Nonprofits from a third party not owing a
duty of confidentiality to the Discloser; (d) is
disclosed without a duty of confidentiality to
a third party by, or with the authorization of,
Discloser; or (e) is independently derived by
MAP for Nonprofits.
1. The Confidential Information to be disclosed
can be described as and includes:
4. This Agreement states the entire agreement
between the parties concerning the disclosure
of Confidential Information. Any addition or
modification to this Agreement must be made
in writing and signed by the parties.
Invention description(s), technical and business information relating to proprietary ideas
and inventions, ideas, patentable ideas, trade
secrets, drawings and/or illustrations, patent
searches, existing and/or contemplated products and services, research and development,
production, costs, profit and margin information, finances and financial projections,
customers, clients, marketing, and current or
future business plans and models, regardless
of whether such information is designated as
“Confidential Information” at the time of its
disclosure.
5. If any of the provisions of this Agreement are
found to be unenforceable, the remainder shall
be enforced as fully as possible and the unenforceable provision(s) shall be deemed modified to the limited extent required to permit
enforcement of the Agreement as a whole.
WHEREFORE, the parties acknowledge that they
have read and understand this Agreement and
voluntarily accept the duties and obligations set
forth herein.
2. MAP for Nonprofits shall limit disclosure of
Confidential Information within its own organization to its directors, officers, partners,
members, employees and/or independent contracts (collectively referred to as “affiliates”)
having a need to know. MAP for Nonprofits
and affiliates will not disclose the confidential
information obtained from the discloser unless
required to do so by law.
On behalf of MAP for Nonprofits:
Name (Print or Type):
Signature:
Date:
Discloser of Confidential Information:
3. This Agreement imposes no obligation
upon MAP for Nonprofits with respect to
any Confidential Information (a) that was in
Recipient’s possession before receipt from
Discloser; (b) is or becomes a matter of public knowledge through no fault of MAP for
Name (Print of Type):
Signature:
Date:
30
i
Tool 6 Plan of Merger
This tool provides a template for a Plan of Merger that must be
completed in order to fulfill the legal requirements in the State of
Minnesota.
Plan of Merger by and Between
________________________________________ AND _____________________________________ This shall constitute the Plan of Merger by and between X Agency, a Minnesota nonprofit corporation, and Y Agency, a Minnesota nonprofit corporation ( Y or sometimes referred to as the
“Surviving Corporation”), pursuant to Minnesota Statutes, Chapter 317A.
Terms and Conditions of Merger
1. EFFECTIVE DATE.
The merger will be effective at 12:01 a.m. on (Date)
2. SURVIVING CORPORATION.
Y Agency shall be the Surviving Corporation upon the accomplishment of this merger.
3. NAME.
The name of the Surviving Corporation shall be “______________________.”
4. REGISTERED OFFICE/LOCATION OF CHARITABLE ACTIVITIES.
The registered office of the Surviving Corporation will be ______________, and the charitable
activities of the Surviving Corporation will be conducted at _________________, and at other
locations designated by the Surviving Corporation.
5. GOVERNANCE.
5.1.Board of Directors.
The Surviving Corporation will be governed by a Board of Directors consisting of not less than
___ directors. The initial directors and their terms of office shall be as set forth on Exhibit A.
5.2Officers.
The Surviving Corporation shall have the following officers: Chair, Vice-Chair, President, and
Secretary/Treasurer. The initial slate of officers shall be as set forth on Exhibit B. Officers of
the Surviving Corporation shall serve for a term of one year.
5.3.Members.
The Surviving Corporation shall have no members.
6. FINANCIAL RESOURCES AND MANAGEMENT.
A. General Operating Funds.
All financial resources of X Agency and Y Agency will be merged. All revenues from fees for
service, donations, and grants, as well as interest from investment accounts and reserves will
become part of the general operating funds of the Surviving Corporation, at the time of the
merger and thereafter.
31
B. Restricted Funds.
Any restricted funds (those designated by the donor for a specific purpose) will remain so.
Any funds restricted by the Board of Directors will be considered to be unrestricted assets to
the extent provided under generally accepted accounting principles.
C. Assumption of Assets and Liabilities.
The Surviving Corporation will assume all of the assets and liabilities of X Agency and Y
Agency, whether now known or hereafter determined.
D. Gifts and Grants.
All gifts or grants, including but not limited to any bequest or devise under any trust or Last
Will and Testament, made before or after the effective date of this merger to either X Agency
or Y Agency shall inure to the benefit of the Surviving Corporation.
7. ARTICLES OF INCORPORATION.
The Articles of Incorporation of the Surviving Corporation, including all amendments proposed as part of the merger, shall be as set forth in the Articles of Incorporation of Y Agency,
attached hereto as Exhibit C.
8. BYLAWS.
The Bylaws of Y Agency, as set forth on the attached Exhibit D and hereby incorporated by
reference, shall be the Bylaws of the Surviving Corporation.
9. APPROVALS.
This Plan of Merger is conditioned upon the approval of the Plan of Merger by a majority of
the directors of X Agency and by a majority of the directors of Y Agency.
32
x
Tool 7 Filing and Notification Requirements
Tool 7 is a checklist outlining the steps necessary to complete the
legal filing for two common kinds of realignment options, asset
transfer and merger. The Minnesota Secretary of State requires that
specific documents be filed once both organizations’ boards have
agreed to merge.
Asset Transfer
o
o
o
o
Merger plan approved by both boards
Develop list of assets for joining organization
Consider audit/books review of both organizations
Decide whether joining organization will dissolve or go inactive
o If dissolution:
Follow statutory dissolution process
Publish notice of merger
o If inactive:
Create internal protocols for maintaining inactive status,
both 501(c)(3) and MN registration
Discuss role/duties of board during inactivity
Who will keep up annual filings/registrations?
o Transfer assets to surviving organization
Merger
o Plan of Merger approved by both boards. Elements include:
o
o
o
o
Names of corporations merging
Name of surviving corporation
Terms/conditions of proposed merger
Manner and basis of converting memberships into surviving corporation
Amendments to Articles of surviving corporation
If organizations are other than 501(c)(3), file notice of merger
with MN Attorney General’s office
Publish notice of merger
File Articles of Merger with MN Secretary of State. Elements
include:
Plan of Merger
Statement that plan has been approved by boards of both
organizations
Statement that notice (if required) has been given to
Attorney General
File Articles of Merger with MN Secretary of State:
o Secretary of State returns Certificate of Merger
o Submit notice of merger to IRS
33
Merger
implementation
The goal is to build a new culture together.
“Understanding the
challenge to personnel
in any integration is
I
t is often said that once two organizations
have merged, the real work begins. This is
true in many cases because integrating two
organizations can often be more time-consuming than the merger negotiation process.
It is essential, therefore, to develop a clear
plan for the Implementation phase of merger.
There are many questions to be answered.
Who will make the decisions? How will staff
at all levels be involved in the success of the
merger? What systems must be integrated?
How will communication be handled? How
will funds be raised?
One of the crucial areas
that can make or break
the implementation of a
merger is the melding of
organizational cultures.
Merger partners each
have their own cultures,
the values, beliefs, norms
and ground rules that
define how an organization operates. Cultural
issues include:
•
•
•
•
•
•
The Project ReDesign Team leverages the
expertise of MAP staff to answer these kinds
of questions. MAP can provide nonprofit
legal consultation, governance training, leadership and organizational coaching, strategic
business planning, marketing and communications, financial analysis and technology
assistance. MAP can offer as much assistance
in the merger implementation phase as an
organization requests.
•
•
•
•
•
35
really important.”
Emmett Carson,
President and
CEO, Silicon
Valley Community
Foundation
The heroes
The business environment/strategy
The kind of skills that are valued
The ongoing rites and rituals
The style of the staff
How information is communicated and
shared
The structure: hierarchical or flat
The core values
Views of the future
Decision making: formal/informal
The management style
No two nonprofit mergers are alike, but
there are some issues that commonly arise
in merger implementation. Use the checklist below to determine what issues should
be examined and what decisions will be
required in order to implement a merger.
Finance and Operations Integration
o Determine transfer of assets
o Conduct final audit of merging
o
o
Implementation Planning
o
Transition Plan
o
o Create a Merger Transition Team to
address merger implementation tasks.
This Team will be responsible for
developing an Implementation Plan and
a timeline. It will be responsible to the
newly-formed Board of Directors or, if
there is an extended interim period, to
the Joint Committee.
o
Programming Integration
o Determine short- and long-term
program priorities
o Develop joint operational budget
o Develop individual program budgets
o Create an internal structure to
coordinate and integrate programming
activities
Long-term Plan
o During the first year following merger,
the new Board of Directors should:
o Develop a strategic plan
o Create a fund development plan
o Undertake Board integration and Board
development activities and training
Communications Plan
o Develop a post-merger (and interim, if
Implementation Categories
o
Staff Integration
o Develop an integrated staff structure
o Develop job descriptions for new and
o
o
o
o
organizations
Integrate financial and accounting
systems
Integrate finance and operational
policies
Integrate technology systems (internal,
website, databases)
Integrate/update insurance policies
(workers comp, directors and officers
insurance)
Integrate/update any licenses,
registrations (e.g. lobbying)
o
o
o
o
o
changing positions
Centralize personnel files
Integrate pay scales and benefits
Integrate personnel policies (evaluation
and performance management, paid
time off and vacation days)
Develop a plan for new and shared
office space
o
o
o
36
necessary) communications plan for the
following stakeholders:
Grantors (foundations, corporations,
government, etc.)
Individual donors
Employees
Clients
The public/the media
Program partners and other
stakeholders
Develop a marketing plan for the
newly-merged organization
Branding, logo, letterhead
Advertising
Merger
evaluation
How do we measure the success of mergers?
W
hile for-profit mergers can be evaluated against a bottom line, nonprofit
merger evaluation is difficult at best, and
sometimes nearly impossible.
of people served. But mergers of nonprofits make an impact beyond finances. They
affect people, communities, and society.
These effects are complex and difficult to
quantify. There is no sector-wide metric
tool in use, and scholars seem to be bypassing developing merger metrics. Old metric
tools such as vector analysis and organizational climate scales that were popular in
the 1970s have since been discredited. The
model most in use today is outcomes-based
evaluation (OBE), which looks at the effects/
benefits/changes to your clients (as a result
of a program or service) during and/or after
they have received services. OBE can examine
these changes in the short-term, intermediate term and long-term.
Nonprofits must ask, “Do we serve our consumers more effectively and as efficiently as
possible?” The very nature of the mission of
many nonprofits makes impact measurement
difficult to quantify. People naturally assume
that mergers will result in efficiencies, but
much of the evidence supporting this notion
is anecdotal. Gains from merger are significantly based on organizations’ willingness to
restructure the workforce. This is unpopular
to do on the front end because it is so personal and can be demoralizing; as a result,
nonprofit leadership may hesitate to bring
up the subject, even in times of crisis.
It is also important to remember that any
attempt at merger evaluation is difficult
in the first year. While organizations that
merge are understandably eager to measure
and understand the impact the merger has
In past decades, evaluation studies asked,
“How do you know you are successful?” and
the answers to that question were primarily financial reports and data on numbers
37
on programs, services, staff and overhead, in
reality, the actual results of the merger may
not be known for several years. In addition,
many of the costs of the merger will appear
in the first 6-18 months, making an accurate
financial picture likewise hard to determine
for quite some time. Decades ago, when
hospitals began merging, financial metrics
indicated that during the first 18-24 months
following merger, results were flat or down.
However, beginning at 25 months postmerger, financial strength increased and
even exceeded expectations.
because it was not considered “a high priority.” However, evaluation is critical for the
future health of the organization and impacts
funders’ willingness to support the work of
the merged organization.
Evaluation should encompass both internal
and external factors, including staff retention, volunteers, geographic scope, service
mix, visibility in the community, funding, and
other factors for which data can be measured
and compared. In order for an evaluation to
have meaning, clear goals and objectives
must be established early in the planning
process, and these must be quantifiable.
Evaluation of the merger is a critical step.
Whatever method is used for measurement,
the expectation should be around not losing
ground as a result of the merger. Nonprofits
are in constant peril, given their limited
resources, staffing requirements, and continual need to prove credibility. If a newlymerged nonprofit retains resources, staff
effectiveness, and credibility as a result of
the merger, most organizations would call
that a success.
A meaningful evaluation can be time-consuming and expensive, and nonprofits may
feel they lack the resources to conduct an
evaluation. In a seminal 1991 study of 18
nonprofit mergers, acquisitions and consolidations, (Singer & Yankey), not a single
organization conducted a formal evaluation
“There are very real
social benefits that a
merger strategy can
produce for people and
communities. In the
right hands, mergers
may produce more
results than nonprofit
leaders can achieve by
simply sharpening the
pencil and doing the
donor calls.”
Jean Butzen,
Foundation, Mission
Plus Strategy
38
Vignettes of
nonprofit mergers
in Minnesota
Four recent mergers facilitated by Project ReDesign
W
hen people hear the word merger, they
usually imagine two organizations
coming together to form a brand new organization. In some cases, this is true; but more
typically, one organization is absorbed into
the other. One organization survives (usually
the larger one), and one does not.
merging with a much larger one, sometimes
a simple asset transfer accomplishes the goal
in a way that is faster and cheaper than full
merger. In other cases, two organizations
might merge, and each will keep separate
identities; but one of the organizations will
legally govern the other. This is a parent/subsidiary relationship.
However, these are not the only merger
options from which organizations that wish
to join may choose. The method of merger
with the highest likelihood of success must
be determined on a case-by-case basis, and
Project ReDesign can assist nonprofits in identifying the best option for joining together.
In the case of a very small organization
Project ReDesign has helped with assessment, planning and implementation of
each of these kinds of mergers. The following vignettes give a quick snapshot of a few
recent Twin Cities mergers, facilitated by
Project ReDesign.
39
Two Charter Schools
B educates them in 9th grade and beyond. For
many families, their students begin school at
School A and complete it at School B.
With this full merger underway (approved by
both school boards in December 2008) two
nonprofit charter schools are currently in the
process of fully integrating their administration, staff, curriculum, building and services.
A merger has some real advantages. It allows
for closer cooperation on curriculum and
student development, lower transportation costs and a better strategic position to
attract students in this special-needs community. Additionally, School B had been leasing
space from a church in its community and
was interested into moving into the newer
facility that School A enjoys. That facility
has space for a new gymnasium, something
School B does not have. Construction of that
gym will begin in April 2009, for completion
in time for the 2009-2010 school year.
The first merger between charter schools in
Minnesota will become effective at the end
of the 2008-2009 school year, in July 2009.
These two charter schools, each of which
serves students with a particular kind of physical challenge, had something very important
in their favor when they considered merging: a long history of successful collaboration. They also had parallel missions. School
A’s mission is to prepare their students to
become successful and valued citizens of
the world community. School B’s purpose
is to empower students to develop a sense
of identity and pride, while providing them
with the skills and knowledge to succeed as
global citizens. School A serves children in
kindergarten through 8th grade, and School
Project ReDesign worked with both schools
to ensure a successful merger. The planning
and decision-making process took more than
one year; and the leadership of both schools
are currently following a detailed Merger
Implementation Plan.
Two Community Development Organizations
This merger illustrates a simple asset transfer,
whereby the assets of one organization are
transferred to a “surviving” organization.
Usually, there are no legal or governance
changes to the surviving organization. Asset
transfers are most appropriate for smaller
organizations (generally with very few staff)
that are looking to merge into larger organizations, but that do not have any expectation
of significant continuation in a governance
capacity. Project ReDesign facilitated a
merger of this kind in 2007, which allowed
two similar organizations to position themselves for growth and enhanced regional
community development opportunities.
In late 2007, a large Twin Cities community development organization in one geographic area merged with a very small one
in a different geographic area to become a
single organization serving both locations.
These two nonprofits were each committed to expanding the wealth and resources
of neighborhoods through housing and economic development initiatives. They shared
a history of collaboration, including the
provision of staff from the larger one to
the smaller one, which had no paid staff. In
fact, it was this sharing of staff that eventually led to discussion of a possible merger. In
doing so, leadership of both organizations
40
developed a merger vision to create “a Twin
City-wide community development organization that will better serve our members and
their communities.” In the course of planning the merger, the organizations identified
expectations of positive outcomes, common
understandings between the two nonprofits,
and a realistic timeline for the merger.
large organization amended its governing
documents and the smaller one transferred
its assets—the two organizations merged
under a new name. That new entity, effectively merged in January 2008, is now comprised of 43 member organizations.
The Executive director of the “new” organization had this to say about the merger
experience:
Because their missions were so similar but
their geographic areas were different, and
because one was a small organization with
no paid staff and few assets, the nonprofits opted to merge by simply transferring
the assets of the smaller one to the larger
one. The smaller organization then dissolved
as a legal entity. The “new” organization
expanded its mission and membership criteria to include the both geographic areas.
Thus, in two relatively simple steps—the
“Project ReDesign staff were extremely effective in helping our two organizations identify
both the benefits and potential obstacles of
a merger. With adept facilitating skills, they
were able to move us through a process that
insured an open and inclusive discussion that
ultimately led to an agreement to merge.
Left to our own devices, I doubt we could
have reached the same outcome.”
Two Nonprofits That Wished to Broaden Services
The type of merger in this example creates
a parent-subsidiary relationship. It combines
some of the merging organizations’ administration and services, with the goal of increasing administrative efficiency and program
quality. It creates a new organization, “the
parent,” that governs and oversees all aspects
of the other organization, “the subsidiary.”
While the two organizations may still appear
to be separate, they, in fact, function like a
merged organization.
sufficiency. At the time of merger discussions,
the organization operated 53 programs in 17
locations covering 13 counties. About half
of its program participants had been diagnosed with mental illness. Nonprofit B was
established in 1978 to bring coordinated and
responsive mental health services to persons
in the north metro area who dealt with the
debilitating effects of serious mental illness.
While significantly smaller than Nonprofit A,
it offered a variety of therapy services that
included individual, group, marital and family counseling. However, it lacked the critical size to maintain professional staff in the
areas of accounting, finance, human services,
development and public relations. While
financially healthy, it constantly struggled
to maintain its fiscal health. The decision
was made to explore merger, and discussions
began with Nonprofit A.
A recent merger of this kind took place
between two organizations with different
missions and only a partially overlapping
service area. Nonprofit A, a large organization with a national reputation, was founded
in 1971 to provide services to help persons
with barriers to employment find jobs, locate
affordable housing and achieve greater self-
41
The organizations developed the following
vision for their merger:
area, assuring that services for people with
mental health disabilities will be available
to the community in the most efficient, least
costly and easily accessible way.”
“By joining together, [Nonprofit A and B] can
provide vocational training and job placement services, along with therapy services
to people with mental disabilities. This type
of integrated service has proven to be more
effective for people with disabilities, and is a
model increasingly embraced by the State of
Minnesota. By joining, [these organizations]
can position themselves as leaders in this
Project ReDesign worked with these two
agencies that provided different, but complementary, services to ensure a successful
merger. In this 2008 partnering, Nonprofit A,
the larger one, became the parent organization, and Nonprofit B became the subsidiary.
Two Organizations Providing Mental Health Services
In July 2008, the Minneapolis St. Paul
Business Journal published a lengthy article
about Project ReDesign. The article used the
example of the merger between two agencies that served people with daily challenges
relating to anxiety and mental health to illustrate Project ReDesign’s success at merger
facilitation.
The solution was to merge with Nonprofit
B, which provides help and resources to
individuals with many kinds of mental illness. Nonprofit B is the Minnesota chapter
of a large, national nonprofit, whose mission
“recognizes that the key concepts of recovery, resiliency and support are essential to
improving the wellness and quality of life
of all persons affected by mental illness.”
Nonprofit B had the mission, financial stability, infrastructure and compatible programs
and services to support the individuals that
Nonprofit A had served for over two decades,
so a merger between the two organizations
felt like a good match.
In 1986, a small Twin Cities nonprofit was
founded to help people with anxiety and
panic disorders. Individuals with these kinds
of challenges experience sudden episodes of
extreme fear, along with physical symptoms
that include chest pain, heart palpitations
and shortness of breath. Nonprofit A offered
an educational program that taught effective strategies in anxiety management, promoted a better understanding of anxiety and
panic disorders, and gave encouragement
and support in a caring and nonjudgmental environment. It held bi-weekly support
groups, organized social activities and even
had a lending library. Twenty years later, its
founder/executive director was eyeing retirement but wanted the agency to continue its
mission.
In July 2008, the assets of Nonprofit A were
transferred to Nonprofit B, at which point
Nonprofit A dissolved and became part of
Nonprofit B. In this case, the board of directors of Nonprofit A remained intact and
became an advisory committee to Nonprofit
B; and the retiring executive director of
Nonprofit A was elected to the board of
directors of Nonprofit B.
42
Appendices
Appendix 1 Experts Interviewed and Interview Questions 45
Appendix 2 Literature Review 47
Books, Monographs, and Longer Documents 47
Journal Articles and Case Studies 54
Merger basics 54
Twin Cities connections 60
Other articles and case studies 63
Web Surfing 66
Appendix 3 Full Bibliography 67
43
Appendix 1Experts Interviewed and
Interview Questions
As part of a study conducted by Project ReDesign and funded by
the Greater Twin Cities United Way, 11 national nonprofit merger
experts were interviewed by telephone in January and February,
2009. Most of these experts have authored books and journal articles on the subject of nonprofit mergers. Many are independent
consultants currently assisting nonprofits that wish to merge.
Rather than reporting on the expert interviews in a single section
of this publication, we chose to incorporate the experts’ comments
throughout the entire text. In addition, quotations from these interviews may be found throughout the document.
Experts Interviewed
Emmett Carson
President and CEO, Silicon Valley Community
Foundation
Louise Dickmeyer
CEO and Founder, Nonprofit Innovations, LLC
Peter Goldberg President and CEO, Alliance for Children and
Families
William Foster
Partner, The Bridgespan Group
Bob Harrington Director, Strategic Restructuring Practice
Area, La Piana Consulting
Jerald Jacobs
Attorney and Author, Pillsbury Law
Thomas McLaughlin Adjunct Lecturer, The Heller School for Social
Policy and Management, Brandeis University
Dan McCormick
CEO, The McCormick Group
David Renz
Director, Midwest Center for Nonprofit
Leadership
Jodi Sandfort
Associate Professor, Hubert H. Humphrey
Institute
John Yankey
Leonard W. Mayo Professor Emeritus of
Family and Child Welfare, Mandel School
of Applied Social Sciences, Case Western
University
45
Interview Questions
Each of the experts was asked to respond to
14 interview questions:
9. Are there incentives that should be provided to assist nonprofits in pursuing
mergers?
1. Do mergers improve the cost-effectiveness for funders’ investments in the
community?
10. Should foundations consider supporting
mergers as part of their individual priorities, or should support for mergers result
from the intentional partnership of the
foundation community?
2. Following mergers, do nonprofits experience enhanced credibility and financial
support? (Please share examples of how
they do, or do not.)
11. In successful mergers, what elements
are critical for the internal leadership of
the merging organizations during the
process:
3. Are there research materials or studies
you would recommend to us? We are particularly interested in those that address
any evidence that nonprofit mergers
bring about economies of scale.
a. Who should be the key leaders?
b. What role should the board members
play?
4. From your experience, where do you see
economies of scale realized following a
merger? For example, are economies of
scale realized simply from the reduction
of staffing (i.e. due to the retirement of
one executive director)? Are there other
areas where the organizations achieve
improved economies of scale?
c. What authority and expectations
belong to the executive director(s)?
d. What sort of staff engagement is
effective?
e. What design or model have you seen
used effectively?
5. Is there a typical timeline for the merger
process?
12. What external facilitation or consulting is
necessary or is most useful?
6. What expenses typically surprise the
merging organizations?
7. What role should (or do) foundations
play?
13. Are there emerging national or international trends, issues or likely challenges
for which we should prepare?
8. What are the most effective and useful
supportive strategies that foundations
can provide?
14. Do you have any additional thoughts
or recommendations you would like to
include?
46
Appendix 2 Literature Review
In order to better understand current nonprofit merger trends and
to help nonprofit organizations and foundations view merger as a
positive strategic alternative, Project ReDesign undertook a comprehensive literature review. With support from The Greater Twin
Cities United Way and with research help from Library Strategies
Consulting Group, the Literature Review was completed in January
2009. Many of the resources listed in the Full Bibliography are
reviewed below.
Books, Monographs, and Longer Documents
Davis, John Emmeus. Bridging the Organizational Divide: The Making of a Nonprofit
Merger, Burlington, VT: Burlington Associates in
Community Development, LLP, 2002, 39 pp.
•d
Dickmeyer, Louise C. No Risk—No Reward:
Mergers of Membership Associations and Nonprofits (A Handbook to Help You Prepare for
the Complexity of the Process and Avoid the
Inherent Pitfalls), Andover, MN: Expert Publishing, Inc., 2009.
Download this free monograph at
www.nw.org/network/pubs/studies/
documents/makingOfNonprofitMerger.pdf
Despite a strong interest in mergers among nonprofits today, it has been quite a few years since a
new book on the subject has been published. This
soon-to-be-published handbook addresses the
need for mergers among nonprofits and why they
should be considered as an option to strengthen
an organization. Ms. Dickmeyer looks at market
factors and agrees with nationally-known merger
consultant Thomas McLaughlin that mergers
“should be mission and service driven…and not
about the agency itself surviving, but about the
survival of services to clients.”
This detailed monograph relates the merger
between two nonprofit housing development corporations in Nashua, New Hampshire. French Hill
Neighborhood Housing Services and the Greater
Nashua Housing and Development Foundation
combined in 2000 to form Neighborhood
Housing Services of Greater Nashua. It describes
the community of Nashua and outlines the housing situation that led to the development of these
nonprofit agencies and to the eventual decision
to merge them. The section titled, “Assessing
the Potential for Collaboration,” examines pros,
cons, concerns, hopeful signs and “things we
must work on.” Davis walks the reader through
the entire merger process, from developing timelines through merging missions, services and programs, to forming a new board and working out
staffing details. Budgets and legal considerations
are also discussed. There were thorny legal questions, issues about staffing, and concerns about
the location of the new organization’s offices that
delayed the merger process, and Davis spends
a number of pages explaining how these were
handled. Perhaps the most valuable section is
a reflective one, “Learning from the Merger
Process,” that any agency considering merger
will find of interest.
The author was president & CEO of the
Minneapolis Regional Chamber of Commerce
when it merged with the Bloomington (MN)
Chamber of Commerce in late 2001. She uses
this merger as a case study throughout the book,
which provides the reader with a side-by-side
comparison of the two organizations before the
merger began, and tracks the progress of the
merger over a period of about 15-18 months. The
book never glosses over the difficulties and complexities of the process, but Dickmeyer describes
it as “an effort worth undertaking.” She counsels nonprofits considering merger to seek out
resources (people, experts, publications, websites,
and others) that can assist with this sometimesoverwhelming task.
47
Dickmeyer closely examines organizational cultures
in several parts of the book, which she cautions
organizations considering merger not to underestimate, calling culture a “deal breaker.” While preparation is essential to a successful merger, cultural
differences may be the most difficult to read and
anticipate. It is the job of the paid executive, she
says, with the help of volunteer leaders, to make
the cultures mesh, and she has practical suggestions for how that can be accomplished.
organization completed five more mergers that
brought about profound changes in the nonprofit.
Each of the merged agencies approached Family
Service to discuss merging, and each merger was
carefully planned and executed. The process that
Family Service followed in its mergers has now
become a nationally recognized model.
In this agency history, Ron Reed, Family Service’s
executive director during the recent merger
period, outlines six key points he learned from
participating in the merger process:
An entire chapter is devoted to the critical nature
of communication throughout the merger process.
“An ineffective communications strategy, or one
that is not comprehensive,” says Dickmeyer, “may
do more to destruct the process rather than propel
it toward the ultimate goal.” Rather than simply
discussing the topic of communication, the author
uses the case study of the merging Chambers of
Commerce to illustrate all aspects of an effective
communication plan: marketing, public relations,
member communication, and internal communication. Importantly, she is also frank about the
problem areas, such as a too-short time frame in
which to communicate and staff confusion over
the speed and intent of the merger.
• Focus on Mission—Similarity of agency
missions was an important factor in the
merger process.
• Lead with Vision—Developing a shared
vision of what the combined agency would
look like was critical.
• Involve People/Human Dynamics—The
most important element in a merger is
people.
• Develop a Win-Win Situation—It is important to develop an atmosphere of mutual
respect, trust and openness when dealing with differences and to communicate
openly and directly.
Subsequent chapters take up the topics of
finances, structure, governance, legal considerations, and post-merger integration. While not a
“workbook,” this book includes helpful appendices such as a recommended Transition Team
structure, a breakdown of duties of the Transition
Team, a merger timeline, and a sample Transition
Team meeting agenda. There are also sample legal
documents, merger ballots, meeting notices, and
a sample letter notifying constituents of the completed merger.
• Deal with Difficult Issues Early—Develop
common understandings and a clear plan.
• Take Time To Do It Well—Recognize
merger phases: pre-merger phase, planning phase, implementation phase, stabilization phase.
The author summarizes the agency’s 1990s active
merger time in these words:
Haidet, Mark E., Thomas J. Kelley and Paul D.
Nelson. A Legacy of Leadership and Service: A
History of Family Service, Inc. (Rev. ed.), St. Paul,
MN: Ramsey County Historical Society, 2004, 213
pp. (This review covers just the portion of the
book that deals with Family Service’s mergers of
the 1990s, pp. 103-123.)
“In the 1990s, Family Service honored its traditions and stayed true to its identity. Its mission, ‘to
help improve the quality of individual, family, and
community life,’ remained central. Hence, there
were few changes in its programs, only additions,
enhancements, and experiments...Two forces
have carried Family Service from the 19th century
to the 21st: leadership and mission.”
In its first 97 years (1892-1989), Family Service
(St. Paul, MN) had been involved in four mergers. During the brief period of 1989-1991, the
48
La Piana, David. Beyond Collaboration: Strategic Restructuring of Nonprofit Organizations,
San Francisco, CA: The James Irvine Foundation,
1997, 22 pp.
•d
• Nonprofits attempting to restructure must
overcome perceived threats to autonomy and
board and staff members self-interests, as well
as culture clashes.
• Because the concept of restructuring is still
evolving, additional research is needed to analyze the factors that determine success/failure,
establish best practice guidelines, and provide
information for leadership.
Download this free monograph at
www.lapiana.org
In 1996, the James Irvine Foundation commissioned a study to help nonprofits integrate
their organizations for greater efficiency and an
increased chance of survival. Nonprofit collaboration expert David La Piana was hired to conduct
the study, which investigated attitudes of nonprofit leaders, and developed and tested ideas
for “strategic restructuring.” This term extends
beyond mergers and actually refers to a continuum of partnerships that also include consolidations and joint ventures.
• By sponsoring educational activities that raise
overall awareness in the sector, funders can
introduce nonprofits to strategic restructuring
options without requiring them as part of a
grant agreement.
• Funders can provide direct assistance to organizations engaged in restructuring by offering
workshops, training consultants, or providing
direct financial support.
The James Irvine Foundation study addressed five
basic questions:
While this monograph is now 10 years old, the questions asked are still the ones facing nonprofits today,
and the findings of the study are still very relevant.
It provides an excellent overview of the motivations
and challenges that drive the move toward nonprofit
restructuring and the role that funders can play in
focusing attention on collaborative options.
1. How can we best define and describe
the options for nonprofit strategic
restructuring?
2. Is the climate right for strategic
restructuring?
3. What pressures lead nonprofits to consider
mergers, consolidations and joint ventures,
and what difficulties prevent them from
bringing these efforts to fruition?
La Piana, David. The Nonprofit Mergers Workbook
Part I: The Leader’s Guide to Considering, Negotiating, and Executing a Merger (Updated Edition),
St. Paul: Fieldstone Alliance, 2000, 240 pp. $34.95
4. How can funders encourage nonprofits to
undertake strategic restructuring without
being perceived as applying pressure to do
so?
• )
5. What educational activities can funders
promote to encourage strategic restructuring activities, such as mergers, consolidations and joint ventures?
This book is available for purchase at
Amazon.com and from Fieldstone Alliance
at www.fieldstonealliance.org
This is a very user-friendly and graphically-rich book
that starts at Square One: explaining the pros and
cons of mergers and outlining the varied forms that
mergers may take. In addition to an abundance of
illustrations, tables and graphs, each chapter of the
book contains case studies that illustrate examples of
how the section topic was handled by “fictional composite” organizations in real situations. Each chapter
concludes with a short summary of the information
the chapter provided.
Some of the findings include:
• While many nonprofits consider changing
their organizational structure due to economic pressures, some strategic restructuring is natural as the nonprofit sector
matures.
49
La Piana Associates. The Nonprofit Mergers
Workbook Part II: Unifying the Organization
After a Merger, St. Paul: Fieldstone Alliance,
2004, 230 pp. plus CD-ROM. $44.95
The author walks the reader through the process
of organizational assessment: understanding the
organization’s motives for and expectations of the
merger process, assessing board and management
leadership, and looking at risk-taking and growth.
He provides a helpful guide for organizations who
are in “crisis” situations and assists the reader in
identifying appropriate partner organizations and
conducting assessments to find the best match. He
also provides guidance on identifying the costs of
merging and on exploring funding sources.
• )
This book is available for purchase at
Amazon.com and from Fieldstone Alliance
at www.fieldstonealliance.org
This book is the sequel to La Piana’s first Nonprofit
Mergers Workbook. Like that text, it is very practical and hands-on. While Part I addresses the motivations, negotiations and processes of a merger,
it does not delve deeply into the complex implementation issues that follow merger approval.
This phase is his focus in Part II. Like the predecessor to this text (Part I), this book is filled with
graphics, boxes and sidebars that make the book
visually appealing and easy to use. It also contains
chapter summaries.
La Piana frankly addresses common problems such
as autonomy, self-interest, and culture clashes, and
he provides case studies that illustrate how they
can be handled. There is a lengthy chapter on
negotiating a merger, which breaks the complex
process into four well-defined steps. The author
provides details right down to minute-taking and
rumor control, and he even includes a table listing “typical issues” in merger negotiations (governance issues, financial issues, human resource
issues, etc.).
La Piana says the challenging Implementation
Phase requires a great deal of time and energy
and directly or indirectly involves everyone in the
merged organization. It has two components:
legal execution of the merger, and integration.
The first component creates a single organization
on paper, but that organization isn’t a reality until
the second component, integration, has taken
place. Key integration questions may be ignored
or delayed in the busy-ness of the negotiation
process, and once the “deal” is struck, organization leaders may return to catching up on daily
matters. Consultants’ contracts may end. The
result is that implementing a merger often begins
with only a vague idea of what lies ahead.
Once a merger is approved, implementation can
be a huge challenge. La Piana addresses the basics
and explains the relationship between implementation and “integration.” This includes integrating
boards, systems, management and staff, and handling culture conflicts that might arise. As in every
section, helpful case studies are provided.
Appendices include:
• Sample final minutes from a completed
negotiation
• A pre- and post- merger organizational profile to help illuminate outcomes
This book is divided into two main sections. The
first, “Going the Distance,” addresses effective
change leadership, managing the integration
process, helping people cope with change, and
effective communication. Section two, “Creating
an Integration Plan,” helps users develop the
content of a plan and integrate Boards, culture,
management, staff and volunteers. The author
tackles the complex subjects of integrating systems, programs, and communication/marketing.
Each chapter in the section contains both summaries of the information and “Challenges and
• A sample ad for a nonprofit seeking a
partner
• A sample confidentiality agreement
• A sample implementation/integration plan
There is also a list of resources and helpful (reproducible) worksheets.
50
•
Roadblocks” that might arise. For example, in
the section on integrating staff and volunteers,
possible challenges include resistance to change,
rumors, and low morale. If people are laid off,
they must be treated well, but a focus on individual concerns must be balanced with a focus on
the organization’s overall well-being.
a mission. Instead, mergers, he says, are about
“melding” missions of nonprofits, thereby allowing the combined entity to pursue a common purpose with greater stability. Mergers become “the
rebirth of an organization rather than the death
of a mission.”
His chapters walk the reader through the merger
process:
Appendices (these are in both the book and on
accompanying CD-ROM) include:
1. Deciding to merge—reasons, emotions,
driving forces, strategic objectives, cost
• A sample integration plan organized by
activity area and target date
2. Selecting a merging partner—connections,
similarities/differences
• A pre- and post- merger organizational
profile (also in Part I)
3. Laying the groundwork with staff and
volunteers—considering human elements, choosing a leader, building support,
spreading the word
• A sample human resources audit to reveal
strengths/weaknesses in each nonprofit’s
HR system and identify issues needing
resolution
4. Negotiating and determining structure—
governance, by laws, making the structure
work
• A sample technology audit that looks at
hardware, software, training and support
5. Dissolution vs. merger—control of assets,
determining the surviving organization,
fundraising
McCormick, Dan H. Nonprofit Mergers: The
Power of Successful Partnerships, Gaithersburg,
MD: Aspen Publishers, 2001, 170 pp. $71.95
• )
6. Technical and legal aspects—voting, electing a new Board, legal issues such as
employee benefits
This book is available for purchase at
Amazon.com and is also at the Minneapolis
Public Library’s Foundation Center, call #REF
HD2769.M334.15 2002 SOC
7. Working with consultants and attorneys—
hiring a consultant, finding appropriate
legal counsel, working with CPAs and
other professionals
McCormick is CEO of the McCormick Group,
which facilitates organizational structure and provides services in foundation development, and he
is also a leading consultant in nonprofit mergers
in the U.S.
8. Transitioning to merge—employee unrest,
volunteer relations
9. Evaluation and stewardship—looking at
overall financial capacity, volunteers and
members, increased efficiencies, redeployment of critical staff, financial/mission
integrity
In this book, he rebuffs the notion that “merger”
equals one company consuming another (that’s
a “takeover” or “acquisition”). Rather, mergers
among nonprofits are opportunities for growth,
better alignment of resources, and a demonstration of stewardship. He advises the reader to
throw away the old notion that a merger means
the death of an organization or the failure of
Appendices include case histories of the Windstar
Foundation and the American Cancer Society,
along with sample documents that can be
adapted to individual merger situations.
51
McLaughlin, Thomas A. Nonprofit Mergers and
Alliances: A Strategic Planning Guide, New York,
NY: John Wiley & Sons, 1998, 256 pages. Price
starts at $92.97 at amazon.com.
• )
1. A penetrating discussion of the reasons to
collaborate
2. The C.O.R.E. Model, a merger/alliance analysis framework
3. Advice on partner selection
This book is available at the library at
MSU Moorhead (call # HD2769.15.
M34 1998), and is available for purchase
at Amazon.com. The review below is
excerpted from the book’s cover flaps and
table of contents.
4. Structure choice analyses
5. Step-by-step guidance through merger and
alliance processes
6. A disk with forms and worksheets that any
nonprofit can customize for its own needs
After more than a century of proliferation and
growth, the nonprofit sector has reached a crossroads. The continued success of an organization’s mission no longer depends on fresh, new
programs and the extension of services, but on
innovative management and a revitalized organizational structure. The time has come for all nonprofits to consider mergers and alliances in their
strategic plans. For many, this may seem a distasteful alternative after decades of Wall Street
mergers made at the expense of workers, communities and consumers—but it doesn’t have to
be that way.
Supplemented with easy-to-use checklists and analytical tables, Nonprofit Mergers and Alliances helps
nonprofit board members and managers make the
right decisions, monitor the entire process, anticipate problems and find solutions quickly. The
information contained in this book will help any
nonprofit organization ensure the successful continuation of its mission in the immediate future as
well as for years to come.
In Nonprofit Mergers and Alliances, Thomas
McLaughlin describes a context for nonprofit
mergers and discusses the forces that shape their
use. He demonstrates that nonprofit mergers are
fundamentally different from corporate mergers,
that they can be of immense benefit to the community as well as to the merging organizations,
and that failure to merge can be disastrous for
everyone. McLaughlin focuses on the concerns of
the nonprofit sector: achieving the mission, retaining tax-exempt status, behaving responsibly in the
community. He shows nonprofit managers and
board members how to make their way through
the merger process without repeating Wall Street
misbehavior.
Part III—Structuring the Collaboration
Table of Contents:
Part I—Deciding to Merge
Part II—The C.O.R.E. of Nonprofit Collaboration
Part IV—Seven Steps to a Successful Nonprofit
Merger
Part V—Strategies for Developing Alliances
McLaughlin, Thomas A. Seven Steps to a Successful Nonprofit Merger, Washington, DC: National
Center for Nonprofit Boards, 1996, 28 pp.
• )
This monograph is out of print but is available at the Minneapolis Public Library’s Foundation Center, call #REF HD62.6.M35 1996
McLaughlin begins this small but very practical
monograph with a statement that mergers are not
a sign that a nonprofit has failed, but rather they
are becoming “a strategic option for dealing with
the nonprofit management challenges of the 21st
century.” Today, tightening government funding
and an increased need for effective service delivery
are heightening the need for consolidation, integration and efficiency. The goal of mergers is not
Using real world examples and case studies,
Nonprofit Mergers and Alliances offers clear, practical step-by-step guidance through the merger
process from preliminary considerations to actual
implementation—pointing out pitfalls and offering insightful commentary along the way. This
helpful volume provides:
52
restructure as needed. Look at the internal and external results of the merger.
Determine whether merger accomplished
what was hoped for.
always cost savings. Other important outcomes
are “achieving economic size” (the minimum possible size for a nonprofit to be able to provide services in its field without long-term damage to its
financial base) and integrating services. Through
mergers, nonprofits are putting an end to fragmented service delivery and inefficient use of economic resources.
The author’s seven steps are:
Wenger, Hilda Shirk. Motives for Mergers
Among Family and Child-Serving Agencies, dissertation.com, 2000, 97 pp. $19.95
• )
1. Get to know your partner
What are the motivations for merging?
What are the organizations’ cultures? How
can trust be built?
Available for purchase at Amazon.com and
www.dissertation .com
Ms. Wenger’s PhD Business dissertation for North
Central University in Arizona looks at what motivates nonprofit social service agencies to merge,
and whether the merger achieves what was
intended. It also looks at unanticipated problems
and changes to mission statements as a result of
the merger. The study focuses on family and childserving organizations that have merged with similar organizations between 1988-1999 through
a mutually agreed-upon process. Ms. Wenger
explains, “As traditional social service agencies
look for ways to improve the quality of their service provision in light of increasing environmental
and internal pressures, they need to know what
mergers can and cannot do for them. There is
much that can be learned from the experiences
of those that have already responded to those
pressures and restructured their organizations.”
The Alliance for Children and Families, a national
membership organization servicing more than
365 nonprofit agencies that provide a wide range
of services for children, families and communities,
provides the context of this study.
2. Form a merger committee
Be strategic. Solicit the help of a consultant
or facilitator. Form necessary subcommittees. Establish basic ground rules.
3. Choose the chief executive and the organization’s name
Will the leader come from within the ranks
or from an external search? Naming can
be a contentious issue and one with legal
ramifications.
4. Structure the new entity
Design the board and governance structure. Balance interests. Expect a 6-9 month
period leading up to formal merger.
5. Encourage acceptance through effective
communications
Most resistance will come from “Big Es”—
ego and economics. An effective, strategic communications plan can help reduce
internal and external resistance.
Among the author’s findings: There is a proactive reason for many mergers (e.g. agencies
are merging to share resources and improve client services) in contrast to literature that suggests
such mergers are largely a response to factors
that threaten survival. Greatest gains from mergers were reported in improved client services,
with lesser gains in administrative cost savings
and organizational stability. This view of merger
as an opportunity for growth—not a reaction to
threat—gives an important perspective for agencies making decisions about the feasibility of strategic restructuring.
6. Write a merger agreement
Check with your state oversight office to
see if there are documentation requirements. Find an attorney knowledgeable
about the corporate structures of nonprofit
organizations.
Don’t forget the champagne!
7. Implement and evaluate the merger
Evaluate all organizational functions and
53
Yankey, John A. Barbara Wester Jacobus, and
Kelly McNally Koney. Merging Nonprofit Organizations: The Art and Science of the Deal.
Cleveland, OH: Mandel Center for Nonprofit
Organizations, 2001, 69 pp.
•d
Journal Articles and Case Studies
Merger basics
Bradley, Bill, Paul Jansen, and Les Silverman. “The
Nonprofit Sector’s $100 Billion Opportunity.”
Harvard Business Review, May 2003, Vol. 81, No.
5, pp. 94-103. (Electronic copy. Excerpted from an
author’s abstract.)
Download this free document at
http://case.edu/mandelcenter/publications/
casestudies/MergingNonprofitOrgs.pdf
Imagine what $100 billion a year could do for
philanthropic and other nonprofit institutions.
According to a new study, the nonprofit sector
could free that amount—maybe even more—by
making five changes in the way it operates. The
study asked two central questions: Does the sector’s money flow from its source to its ultimate
use as efficiently and effectively as possible? If not,
where are the big opportunities to increase social
benefit?
This publication is a product of the Strategic Alliance
Project, an initiative of the Mandel Center for
Nonprofit Organizations at Case Western University.
The Center’s mission is to enhance the effectiveness
of nonprofit leaders and managers and the organizations they serve through education, research and
community service.
Mergers, say the authors, are both science and
art. They are somewhat systematic and predictable
(science); but they are also often highly unpredictable—involving individuals and organizations with
histories, personalities and cultures. The authors
liken mergers to “artful dances” and this book
is intended to guide nonprofit leaders through
that dance. It is an engaging workbook structured around two nonprofits that are composites
of several different organizations with which the
authors are familiar. The organizations’ experiences
are presented through the eyes and perspectives
of several individuals involved in the complex process. The individuals’ “Lessons Learned” one year
later are presented at the end of the study. Lessons
included:
While this article does not directly address mergers, it examines the big picture of which mergers and other kinds of collaborations are a part.
The authors believe that nonprofits could save
$25 billion a year by changing the way they raise
funds; and by distributing funds more quickly,
they could put an additional $30 billion to work.
Organizations could generate more than $60 billion a year by streamlining and restructuring the
way they provide services. Part of streamlining
and restructuring includes trimming administrative
costs (which added up to $80 billion among nonprofits in 1999). The authors note that scale economies work against small nonprofits, which have
higher administrative cost ratios than their larger
peers. Sharing service arrangements and consolidating office functions can improve the bottom
line. In the cases of the Alzheimer’s Association,
Girl Scouts and Planned Parenthood, consolidating under-performing chapters provided a partial
solution.
• An appreciation of establishing a shared
vision
• The realization that it takes a great deal of time,
energy and money to complete a merger
• The importance of involving an appropriate
cross-section of stakeholders
• The necessity of building trust
• The importance of communication
• The value of merger in preserving the
strength of an organization
• The value of a well-chosen “neutral”
consultant in guiding the process
54
Dewey and Kaye. “Nonprofit Mergers: An
Assessment of Nonprofits’ Experiences with the
Merger Process,” Tropman Reports, The Forbes
Funds (Tropman Fund for Nonprofit Research),
November 2007.
Butzen, Jean. “Are Nonprofit Mergers an Ethical
Way to Grow?” (Blog, November 26, 2007).
•d
Read the blog at
www.missionplusstrategy.com/
2007/11/are-nonprofit-m.html
Jean Butzen is a former nonprofit CEO who now
does consulting work on values-driven mergers,
partnerships and management for nonprofits. The
subject of her Nov. 26, 2007 blog is the October
2007 merger of The Points of Light Foundation
and the Hands On Network. Both of these organizations were successful stand-alone nonprofits. Why merge? One reason is to “get to scale”
to tackle large problems. How, she asks, does a
nonprofit get to scale in this capital-starved environment? Good business practices and close
attention to marketing and fundraising are essential; but a quicker and perhaps more efficient way
is through mergers, consolidations and alliances.
The author invites readers to share their thoughts
and comments on the subject.
•d
www.forbesfunds.org/docs/Tropman2007/
Report2-DeweyKaye.pdf
Why do nonprofits explore merger? What do
they expect to achieve? How long do they take?
How much do they cost? What are the results?
This report looks at 22 nonprofit organizations in
Allegheny County, Pennsylvania, that explored,
attempted or completed a merger. It seeks to
answer the questions above and provide recommendations that nonprofits and funders can use
to inform their conversations about the merger
process.
This Tropman Report, one of a number of nonprofit studies that the Forbes Funds has supported, asks five questions:
1. How do merger opportunities typically
emerge?
Chronicle of Philanthropy, Live Discussion,
December 2, 2008. http://philanthropy.com/
live/2008/12/mergers_and_alliances/
2. Why were merger explorations
undertaken?
3. What were the roles of staff, board and
outside assistance in the merger process?
This resource is the transcript of a live (and
lively) online discussion that took place in early
December 2008. Guests were William Foster, a
partner at the Bridgespan Group, his Bridgestone
colleague Alex Cortez, and Lois Savage, president of the Lodestar Foundation. The panelists
took questions from people from a wide range
of nonprofits and from some consultants as well.
While some participants’ questions were directed
to their own specific circumstances, others were
more general, such as how to begin discussions
about mergers and collaborations, what the major
differences are between nonprofit and for-profit
mergers, and how foundations can encourage
collaborations among their grantees. The questions are ones that many nonprofits ask and the
answers are direct. In the course of the discussion,
Savage explains her firm’s Collaboration Prize,
a $250,000 award to “the best collaboration
between otherwise competitor nonprofit organizations.” That prize was announced in spring
2008 and awarded in March 2009.
4. How long did the merger process last?
5. What were the results of the process?
The tables of theme-based recommendations
for nonprofits, such as a recommendation under
“Culture” that “Experienced consultants can
help a merged organization address cultural differences and reduce the time required for postmerger integration” and recommendations for
funders such as “Mergers are driven by emotion. Focusing on mission instead of cost savings
will bring more nonprofits to the table” are well
worth exploring.
55
Dickey, Marilyn. “Making a Merger Go Smoothly
for Nonprofit Workers.” Chronicle of Philanthropy, June 10, 2002, p. 37.
Many of the published resources about merger
stress the importance of merging organizations’
“cultures.” But what does this mean? Culture is
something that cannot be seen, but it surrounds
everyone in the workplace. It is comprised of the
values, beliefs, underlying assumptions, attitudes,
and behaviors shared by a group of people. It is, in
short, the (generally unspoken) rules for working
together. The author offers seven characteristics of
culture:
Author Dickey focuses on a critical part of the
implementation phase of any merger: people
issues. People fear lay offs, salary/benefit reductions, changes in supervision, and restructured
jobs. Constant communication and “rumorcontrol are essential. She cites the example of
two Columbus, Ohio AIDS organizations that
planned to merge. They moved into the same
building together more than a year before their
merger was finalized. Doing so gave employees
time to become acquainted with their new colleagues and removed much of the “fear factor.”
Leaders of two merging organizations in San
Jose, California, organized programs to help the
staffs of the two groups become acquainted in
informal settings and put changes into place that
employees requested (like reduced paperwork). It
reduced people’s tendencies to become “territorial” and made them more willing to view change
in a positive light.
• Culture = Behavior
• Culture is learned
• Culture is learned through interaction
• Sub-cultures form through rewards
• People shape the culture
• Culture is negotiated
• Culture is difficult to change
Hodgkin, Christopher. “What You Should Know
About Nonprofit Mergers.” Nonprofit World,
July/August 1994, Vol. 12, No. 4 (Electronic copy)
This article looks at merger from a legal point of
view. The author defines a “true merger” as one
where “one organization survives and the other
is legally dissolved, transferring its assets and programs to the surviving organization.” He takes the
reader through the complexities of the process—
structural issues, legal issues, process issues, and
cultural issues – and offers alternative suggestions
to merger. One is a joint operating agreement
(sharing administrative staff and offices but maintaining separate programs). Another is to establish
a parent-subsidiary relationship. These alternatives
allow organizations to work together for a period
of time to see whether they are compatible merger
partners. Hodgkin notes that a merger is “basically
irreversible” and should not be entered into without comprehensive planning and thinking about
many complex issues. He advises that “a merger
will always take longer and cost more than you
think it will.” While some savings will occur as a
result of the union, most savings will not show
up for a year or two, and the merged organization must have a financial cushion to survive the
process.
Hackett, Kelly. “Essential Pre-Merger Reviews.”
Association Management, July 1997, vol. 49,
No. 7 (Electronic copy)
With more associations looking for ways to
streamline costs and increase efficiency while
continuing to serve their members’ needs, interest in mergers is increasing. When that happens,
the board must perform a due diligence review
of the other parties to the merger to determine
whether this action would further the interests of
the organization. The due diligence process helps
ensure that the members of the board satisfy their
fiduciary duties of care, loyalty and obedience.
Heathfield, Susan M. “Culture: Your Environment for People at Work.” About.com. Human
Resources.
•d
http://humanresources.about.com/od/
organizationalculture/a/culture.htm
56
Jacobs, Jerald A. “Association Mergers and Consolidations: Strategic Considerations.” Association Management, August 2004. Vol. 56, No. 8,
pp. 17-18 (Electronic copy).
in the nonprofit world. Also, “mergers beget
mergers.” That is, nonprofits become inspired by
mergers that they observe, and board members,
usually talented business people, proselytize for
the benefits of combining. The author goes on
to discuss the “mechanics” of merging: inquiry
and consideration, planning, approvals, and closing the deal.
While, from a legal standpoint, mergers and consolidations are among the most complex legal
endeavors that associations can undertake, associations with overlapping or complementary purposes, memberships, activities, or long-range
plans may be able to serve their constituencies best by joining together to form one larger
association.
Kohm, Amelia. “What Happens When Nonprofits Consolidate (Either Partially or All the Way)?
Nonprofit World, May/June 2002, Vol. 20, No. 3,
pp. 24-29 (Electronic copy).
Jacobs, an attorney, explains the differences
between three options: consolidations, mergers
and the less-common “dissolution and transfer of
assets.” He stresses the importance of due diligence reviews to protect the liability of individual
board members in mergers and consolidations.
These reviews affect full disclosure and objective evaluation of financial and legal risks of each
combining association. The presence of adverse
findings in such reviews is not necessarily cause
for a board to reject the planned combination;
however, it requires board members to create
strategies for dealing with these realities.
This article reports the results of a survey conducted by the Chapin Hall Center for Children, a
policy research center at the University of Chicago,
and Strategic Solutions, a California-based project
of La Piana Consulting, asking 192 U.S. nonprofits
to share their strategic restructuring experiences.
Researchers divided partnerships into two categories – Alliances (administrative consolidations,
joint programs) and Integrations (mergers, joint
ventures, management service organizations).
Among the findings:
• Very young and very old organizations
were less likely to be involved in strategic
restructuring
Jacobs, Jerald A. “Mergers: Easier (and Harder)
Than You Think.” Associations Now, July 2008.
• Integrations usually involved fewer organizations than alliances did
www.asaecenter.org/PublicationsResources/
•d ANowDetail.cfm?ItemNumber=35070
• Competition is a key factor in the decision
to restructure
Jacobs notes that nonprofit mergers are actually more difficult than business mergers. When
business leaders consider merging, they look at
revenue, profits, capitalization, cost cutting, and
other economic factors. But nonprofit mergers,
contrary to popular belief, are rarely driven purely
by economic factors. They focus on the survival
of programs, identification of leadership, and the
“cultures” of the groups. The benefits of nonprofit
mergers are often difficult to quantify because
they may seem “personal” to those affiliated with
the organizations and services. Jacobs explains
the growing number of nonprofit mergers as a
result of an increase in leadership professionalism
• Most respondents entered into restructuring to improve the quality of what they do
rather than because of threats of closure or
pressure from funders
• The most common benefits of restructuring were increased services, increased
administrative capacity and quality, and
increased market share
• Most common problems were conflicting
organizational cultures, adjustment of staff
to new roles, difficulty in building trust
57
• Factors most strongly contributing to success were a staff/board member who
championed partnership, positive past experiences with partnering with others, board
encouragement, organizational orientation
toward risk-taking and growth
Kohm goes on to relate two case studies, the first
a consolidation between Stage One, a children’s
theatre in Louisville, KY and the Kentucky Center
for the Arts (KCA), a larger organization that could
provide Stage One with office space, maintenance
and security, accounting and phone systems, and
technical support. In return, KCA deepened its
mission of serving all Kentuckians because it now
had a vehicle with which to reach children. A second describes a union between Talbert House and
Core Behavioral Health Centers of Cincinnati, OH.
Both had similar missions (offering services in mental health, community corrections, and substance
abuse), but one (Talbert House) was much larger
than the other. After rejecting a full merger because
of the smaller organization’s concerns about losing
its community orientation and relationships with
funders, the two groups settled on a parent-subsidiary relationship that established Core as a membership organization with Talbert House as its only
member. The author concludes the article with a
reflection on how the language of courtship and
marriage can be appropriate in the world of strategic restructuring. “As the saying goes, ‘Marriage
is when two people become as one; the trouble
starts when they try to decide which one.’”
opportunities presented by potential merger can
move those organizations away from acceptance
of the problems and toward actions to resolve
them. He urges leaders to consider the organization’s history of risk-taking and growth. Finally, he
advises anyone considering merger to look around
their own nonprofit community for examples of
success and share them with others in your organization. Pay attention to what the reactions to
those stories tell you.
Light, Paul C. “The Risk of Too Much Charity
Reform.” Brookings, April 20, 2000.
www.brookings.edu/opinions/
•d 2000/0420governance_light.aspx?p=1
Paul Light, Vice President and Director of
Governmental Studies at the Brookings Institution,
takes a wide angle look at the charities reform
movement in this short opinion piece. How charities do their work is becoming almost as important
to grant makers and charity clients as the goods
and services the charitable organizations deliver.
He argues that charities feel more pressure than
ever before to improve their internal management,
and they generally follow one of four philosophies: 1) Adopt a common set of best practices, 2)
Measure results, 3) Merge, re-engineer and downsize, 4) Make more information available to the
public. Light feels there is no one way to improve
performance, and that nonprofits can learn from
federal reform efforts, which have often “done
more harm than good.” In the case of alliances,
nonprofits must think seriously about how much
time and energy a successful alliance demands.
La Piana, David. “Nonprofit Mergers: Is Your
Organization Ready for the Road?” The Grantsmanship Center Magazine, Spring 2001.
•d
MacDonald, Jeffrey. “Nonprofit Organizations
Seek Strength in Mergers.” Christian Science
Monitor, June 5, 2006
www.tgci.com/magazine/01spring/road1.asp
Nationally-known merger expert David La Piana
provides self-assessment questions for organizations wondering if merger is the right move for
them. He probes motivations and expectations for
merging (Is it because of finance, skill set or mission? Are there specific, measurable outcomes?).
He addresses the issue of unification—of missions,
strategic purposes, and leadership. In the case of
organizations with chronic problems, he notes that
•d www.csmonitor.com/2006/0605/
p13s01-wmgn.html
This article quotes nonprofit merger expert Thomas
McLaughlin extensively. Nonprofit mergers, once
thought of as the ‘m-word’ are shedding their
stigma to the point of becoming alluring. After successful consolidations for such well-known groups
58
• The time between the deal’s announcement
and its close, and
as the Girl Scouts of America and the American
Lung Association, nonprofits of all sizes are testing
the waters. Funders play a key role in the “merger
mania.” Because federal dollars are shrinking
and competition for grants is becoming increasingly intense, private and public benefactors are
encouraging efficiencies and economies of scale.
Observers of the nonprofit sector expect mergers
to continue.
• The first 100 days after the close
The longer the soon-to-be-merged organizations
are in the period between the announcement and
the close, the more consuming and the more complicated the communication becomes. Speeding
things along, bringing closure with appropriate
involvement from all who must sign off or buy-in,
and forging social connections are critical requirements for the spokespeople. Several case studies of
merging associations illustrate the authors’ points.
McCormick, Dan H. “Nonprofit Mergers: Laying
the Groundwork with Volunteers and Staff.” The
Grantsmanship Center Magazine, Spring 2001.
•d
http://tgci.com/magazine/01spring/
ground1.asp
Prokuski, Bronislaw. “Anatomy of a Merger.”
Association Management, February 2002, Vol.
54, No. 2. (Electronic copy)
When a merger takes place, some staff and volunteers who are emotionally connected to the “old”
organization’s mission may have difficulty accepting the new one. This article by a national merger
consultant addresses the topic of managing such
discontent. Identifying new leadership early in the
merger process is critical, says McCormick. Getting
“volunteer leaders” to positively influence other
volunteers or board members is also a good strategy. Taking time, involving staff and middle management in the merger process, and maintaining
clear communications are also necessary. The
author points out that “While mergers may start
from the top and work down, they are only successful from the ground up.” He concludes with
a reminder that mergers can be opportunities to
effect sweeping organizational change, providing
fertile ground for initiatives such as zero-based
budgeting, decommissioning programs of questionable value, opening/closing facilities, etc. with
the final goal of unification of people, programs
and priorities.
A merger, says Prokuski, is like a marriage:
“On the surface, it may make sense to a lot
of people, but one needs to question whether
the underlying conditions are right.” This article provides an excellent walk-through of the
merger process. While the author’s experience
comes largely from the merger of associations, not
charities, the parallels are obvious. A merger offers
the opportunity to think out of the box and has
the greatest chance of success when both parties
approach it from a mission and business opportunity point of view, rather than from crisis.
He offers advice to test your organization’s compatibility with a possible merger candidate and
discusses challenges presented when the merging
organizations are not equals. Like other consultants
cited in this Literature Review, Prokuski advises
selecting a new leader very early on in the process.
Pay attention to staff morale, he says, and communicate “up, down, and sideways.” There are practical suggestions such as developing a basic fact
sheet covering the reasons for merger, who made
the decision, and expected benefits, and following
this fact sheet with question-and-answer sessions
with staff. Mergers can take years to complete and
are rarely easy; merging associations (like merging
charities) is often more difficult than merging forprofit corporations.
Patrick, Georgia and Gary McCoy. “Mind Your
Merger.” Association Management, June 2003,
Vol. 55, No. 6. (Electronic copy)
The emphasis of this article is the vital role that
communication plays in the merger process. One
of leadership’s most important roles is to champion
the communication process, moving people as
quickly as possible between two critical deadlines:
59
Singer, Mark I. and John A. Yankey. “Organizational Metamorphosis: A Study of Eighteen
Nonprofit Mergers, Acquisitions, and Consolidations.” Nonprofit Leadership & Management,
Summer 1991, Vol. 1, No. 4, pp. 357-369.
Mergers are “a trend that is going to accelerate,” said Walt Shill of Accenture, which recently
took on its first nonprofit merger, helping to join
the Hands On Network and the Points of Light
Foundation. “Donors are becoming more like
investors: they expect a greater return on their
nonprofit investments.” Another kind of merger
is becoming more common: “partial mergers,”
whereby organizations might share fundraising
activities, technology, accounting systems, mailing
lists, and other aspects of their businesses. The
Humane Society of the United States, the Doris
Day Animal League and the Fund for Animals are
partially merged. But mergers among nonprofits are not easy. Unlike corporate mergers, which
involve a few people working quietly until details
are determined, nonprofit mergers require any
and all stakeholders to be involved, which makes
them more likely to fall through. A merger of two
California foundations, the Peninsula Community
Foundation and Community Foundation Silicon
Valley found itself on rocky ground; but Emmett
D. Carson, CEO of the merged organization,
advised critics to give the merger time.
This scholarly article stands out because it reflects
a time (1980s) when mergers were frequently
“last resort efforts to survive in response to environmental pressures rather than well-planned and
well-executed growth strategies.” The authors
identified four phases of the merger process: making the decision, planning, implementing the plan,
and reviewing/evaluating. They used these phases
as an organizing framework to conduct a review of
the literature on nonprofit mergers at the time and
to study 18 nonprofit merger transactions. Using
information from the Council on Agency Executives
and United Way Services of Greater Cleveland,
Singer and Yankey identified 39 agencies for inclusion in their study. They included family & children’s
services, multipurpose social service centers, health
programs, vocational programs, substance abuse
programs, residential care institutions, and “others.” There were more mergers than other kinds
of consolidations among the study group. The
authors interviewed agencies’ executive directors,
board members, or both.
Twin Cities connections
“Authoring the Book on Mergers: How Two
St. Paul Agencies Successfully Joined Their Histories. Alliance for Children and Families Magazine, Fall 2003. Vol. 3, No. 4.
Interviewees indicated that 94% of transactions
resulted from financial concerns. Lesser reasons for
merger/acquisition/consolidation included compatibility of missions (72%), benefit to the community
(39%), effect on employees (22%) and enhancement of services (17%). Study conclusions: financial forces were the major driving force, honest
and clear communication was critical to a smooth
transaction, and staff morale was affected.
This article describes the 2003 merger process
between two St. Paul nonprofits, Family Service,
Inc. and Children’s Home Society of Minnesota.
The organizations had a combined history of over
200 years of child-and-family service. The merger
was successful because it was methodically carried out; it focused on their newly-combined
mission; and it established a good working relationship between management, staff and boards.
Open communication was key to the success as
well. The organizations also engaged consultants
to “smooth the edges of the merger.” Because
the services offered by the two organizations
were complementary, the “fit” was excellent, and
Strom, Stephanie. “Charities Trying Mergers to
Improve the Bottom Line.” New York Times,
November 11, 2007.
•d
www.nytimes.com/2007/11/11us/
11merge.html?_r=1&adxnnl=1
&adxnnlx=12287667339NH5CuoCByQPVMP2tsXsyg
60
Lucas, Carol and Ron Reed. “Keys to a Successful
Nonprofit Merger.” Nonprofit World, May/June
1992, Vol. 10, No. 3. (Electronic copy)
trust was high. “When we got stuck,” said one of
the organizations’ CEO, “we focused on where
we were going. In the depths of our hearts we
believed that we were both good and going to
get better.”
This case study deals with the 1987- 89 merger
of Family Service of Greater Saint Paul and East
Communities Family Center. A successful merger
is carefully planned, soberly decided, and requires
close and continuous consultation with all who
harbor reservations toward the union, said Ron
Reed of Family Service of Greater Saint Paul. A
well-executed merger of two nonprofit organizations with complementary missions, values and
strengths can achieve economies, efficiencies
and synergies that few organizations can achieve
alone. There are six basic keys to strengthening
the merger process:
Kirkpatrick, Kevin T. “Go Ahead—Pop the Question.” Stanford Social Innovation Review, Summer 2007. (Electronic copy)
The marriage metaphor illustrates this author’s
belief that “marriages between nonprofits”
(i.e. mergers) would be good for the sector as
a whole. The unions would make the lives of
nonprofit organizations easier by reducing the
competition between them for financial support, legitimacy, and political power. Additionally,
they could help nonprofits build public will and
motivate sustainable change in both policy and
behavior. According to Guidestar, the number of
nonprofits focusing on children, youth and family
issues (the author’s area of work) grew more than
250% between 1999 and 2006. He says these
nonprofits live “the single life” in the nonprofit
world and consume vast resources operating
often small operations.
1. Focus on mission
2. Create a clear vision of the new
organization
3. Involve people who will be affected in the
process
4. Strive for a win-win alliance
5. Deal with difficult issues early and directly
A number of cases illustrate Kirkpatrick’s points
in this article, including recent efforts by the
Minnesota Early Learning Design (MELD) to merge
with complementary nonprofits. One of these,
Parents as Teachers was an excellent fit. The article discusses this merger in detail, noting which
local funders helped underwrite its costs.
6. Take time to do it well
This detailed article takes the reader through the
merger process, looking at organizational backgrounds, compatibilities and differences. It follows merger planning and negotiations month
by month for approximately 15 months, from the
boards’ first conversations in November 1987 to
the official union of the agencies in January 1989.
Are mergers right for every nonprofit? “Of course
not,” says Kirkpatrick, but the proliferation of
nonprofits everywhere makes sustainability a
more pressing and widespread concern. He cautions against merging just to survive, and adds
that mergers are not a “zero-sum” game of who
should close so that others can prosper. Rather
the focus should be on a more holistic approach
to pressing problems, requiring visionary leadership that concentrates on creating positive, sustainable change and leaves behind the parochial
interest of one organization or program model
over another. If that’s truly the goal of the merger,
then go ahead and say, “I do.”
61
Russell, Scott. “Putting Good Will to the Test:
Nonprofits Find Mergers Can Be a Messy Business at Times.” MinnPost.com, June 23, 2008.
•d
www.minnpost.com/stories/
2008/06/23/2307/putting_good_will_to_
the_test_nonprofits_find_mergers_can_
be_a_messy_business_at_times)
Minnesota Council on Foundations News
Archives. “Minneapolis and St. Paul United
Ways to Merge.” February 27, 2001.
•d
A volunteer task force comprised of representatives from the St. Paul and Minneapolis United
Way boards of directors recommended the creation of a single, regional United Way organization. The idea was to create a new organization
that will “provide a stronger voice and leadership
for regional solutions to issues that affect local
communities.” The merged organization will have
greater ability to leverage resources and provide
innovative approaches to high-priority issues.
Other benefits include more effective coordination
of services in response to needs, a single set of
reporting requirements for jointly-funded agency
service providers, and a vehicle by which donors
can support services in communities where they
both live and work.
This article about the 2006 merger of the
American Red Cross Twin Cities Chapter, as well
as several other well-publicized local mergers,
is offered as a “cautionary tale” with a moral:
that mergers are harder and take longer than
people think. Frank Forsberg, Greater Twin Cities
United Way (GTCUW) Senior VP for Community
Impact believes that mergers started increasing 10
years ago and accelerated slightly following the
post-911 economic downturn. The GTCUW has
supported approximately two dozen nonprofit
mergers since 2003 through planning and/or
implementation grants.
In the course of the American Red Cross merger,
merging administrative systems and organizational cultures (the St. Paul chapter was smaller
and had a “family” feel, the Minneapolis chapter
was larger and operated out of a fairly new headquarters building) proved challenging. There were
job cuts and losses of volunteers…but important
lessons were learned. “Communication has to be
five times what you consider normal,” said Jan
McDaniel, CEO of the merged organization.
www.mcf.org/mcf/whatsnew/archives/
Feb2001/unitedway010227.htm
Weinmann, Karlee. “Guiding Nonprofits to Each
Other.” Minneapolis/St. Paul Business Journal,
July 11, 2008. Vol. 26, No. 5.
•d
http://twincities.bizjournals.com/twincities/
stories/2008/07/14/story4.html
MAP for Nonprofit’s innovative “Project Redesign”
is the focus of this one-page story in a Twin Cities
business publication. The project, which was
funded for three years, is headed by Ron Reed. It
provides consulting assistance for local nonprofits
that wish to merge. The interest in mergers stems
from the visibility of other successful mergers, a
realization that mergers can be opportunities for
growth, and a reaction to a difficult economy.
Those working with Project Redesign pay a fee
of $2,500-10,000 (based on a number of factors), and the merger process generally takes 6-12
months. In its first year, the project exceeded its
goals and is expected to continue doing so.
Other mergers discussed in this article are Family
Service, Inc. and the Children’s Home Society,
Loring-Nicollet-Bethlehem Community Centers
and Project for Pride in Living, and the merger of
five regional Girl Scout councils.
62
Other Journal Articles and Case Studies
A 2007 evaluation found the combined organization both wealthier and wiser. One of the reasons
for the success was the “buy-in” from funders
who recognized the value of the merger and
committed themselves to maintaining their funding levels after the merger.
Blum, Debra E. “All in the Family.” Chronicle of
Philanthropy, October 13, 2005, Vol. 17, No. 1
(Electronic copy)
In 2003 La Piana Consulting was hired to guide
two California nonprofit domestic violence groups
through a merger. The Center for Domestic
Violence Prevention and Sor Juana Ines were
both located in the same county, both ran crisis
hotlines, and both offered counseling to people in
abusive relationships. And when the financial crisis
hit the Silicon Valley, both faced crushing revenue
declines. By coincidence, their executive directors resigned almost simultaneously. City officials
raised the question of merger, which had already
been on others’ minds. The groups merged to
form Community Overcoming Relationship Abuse
(CORA). But nothing was easy. The new organization’s executive director likened the situation to
“a second marriage in which teenage kids from
previous marriages are thrown together in the
same household.”
From the start, leaders at the smaller organization
were worried that it would be swallowed up by
the larger one – that the partnership would be a
“takeover,” not a merger. In response, the larger
organization committed itself to arranging the
merger as “a union of equals.” While the larger
organization brought some financial stability and
a mature infrastructure to the table, the smaller
one brought expertise in dealing with the Latino
population in a county with a Hispanic population
of 22%. The La Piana consultant who facilitated
the merger admits that it was a difficult one. It
involved two organizations dedicated to a cause
that involves urgency and trauma, and it faced a
“cultural divide.” The absence of executive directors from both organizations at the start of the
merger process further added to the complexity.
In fact, the consultant had to take an unusually
hands-on role of acting as interim director to both
organizations for a period of time.
Burnett, Lee. “Doubling Up.” Chronicle of Philanthropy Special Report, September 18, 2008.
Volume 20, Number 23.
http://philanthropy.com/free/articles/v20/
•d i23/23001401.html.
This informative Chronicle of Philanthropy article tells the story of two social services charities
in the Portland, Maine area that merged. Youth
Alternative (a child welfare charity) and Ingraham
(a crisis counseling and mental health therapeutic facility) were both $12 million agencies that
combined into YAI Youth Alternatives Ingraham,
a $23 million organization. The new entity runs
therapeutic boarding homes and offers telephone services for people in need of help, as well
as offering child-rearing education, counseling
and psychiatric services. It was able to complete
the merger with only a slight reduction in staff
and retention of all programs during a period of
severe cuts in state financing. Since the merger,
fundraising revenue has risen 1.5% despite a
smaller development staff.
Cohen, Debra Nussbaum. Merger of Jewish
Groups Fails to Meet Expectations, Report Finds.
Chronicle of Philanthropy, February 17, 2005,
Vol. 17, No, 9. (Electronic copy)
•d Predictability to Chaos?: How Jewish
The full report is a 165-pg. book titled
Leaders Reinvented Their National
Communal System. It is available for
purchase from the Jerusalem Center.
Contact via e-mail at jcpa@netvision.net.il.
It is also available from Amazon.com.
63
In 1999, three major and well-established Jewish
organizations, the Council of Jewish Federations,
United Israel Appeal, and United Jewish Appeal
merged into a new organization, United Jewish
Communities, that became the 20 th century’s
largest nonprofit merger. A published report five
years later reveals that the new organization has
failed to live up to the goals it was established to
achieve. The report offers helpful guidance about
what makes a merger successful and where the
potential pitfalls lie.
Gargulinski, Ryn. “Foundation Throws Local
Charities a Financial Lifeline.” Tucson Citizen,
December 11, 2008.
•d
To help charities through these difficult economic
times, the Community Foundation of Southern
Arizona has created an Economic Relief and
Stability Fund, with a goal of strengthening nonprofits for long-term sustainability. It has seeded
the fund with $300,000 and will match donations
dollar for dollar, with a goal of $500,000 by the
end of March 2009. The Foundation is encouraging nonprofits and their supporters to focus on
charities’ assets, missions, client bases, and services to identify areas of duplication. It is further
urging partnerships and mergers among organizations. A problem with this approach, say some
charities, is that partnerships are great goals in
principle, but they are expensive. At present, it is
not clear if some of the $300,000 in the relief
fund could be used to help fund partnerships.
Foremost among those goals was to streamline
fund raising and allow the 155 Jewish federations
in the network to exert more influence over donations that they raise for Israeli causes. Monies
raised by the federations support a wide range
of social service programs in the US, Israel, and
abroad. Another goal was to find new ways to
capitalize on the “desire for innovation” among
many Jewish philanthropists. According to the
report this goal was not met because the system remained entrenched in “old ways” of doing
things. The end result, according to the report
was “a new organization that met few if anyone’s
expectations.”
The report’s authors say that one reason the merger
failed is because United Jewish Communities, like
many nonprofit groups, quickly adopted a topdown corporate model which permitted professional leadership to manage the agenda and
removed opportunities for discourse and debate.
In addition, the outside consultants hired to facilitate the merger did not adequately understand
the cultures of the organizations. “Organizational
cultures and styles were never adequately discussed,” the report continues. “The major lesson
learned is not to apply business principles in their
totality to the not-for-profit world.”
www.tucsoncitizen.com/ss/
fromtopemails/104834.php
Harrington, Robert. “Arts and Culture Mergers:
Trends, Challenges and Benefits.” CausePlanet,
November 13, 2006.
•d
http://causeplanet.org/articles/article.
php?id=34
Mergers and other forms of nonprofit partnerships have been on the rise for the past decade,
and particularly in the past five years, says
Harrington. Some nonprofit sub-sectors have seen
more mergers than others. Once largely confined
to health and human service agencies, mergers
are now part of the art and culture sub-sector as
well. Factors underlying this trend include:
• Significant decline in government funding
for the arts
• Decline in corporate funding due to mergers and acquisitions in the business sector
• Natural disasters (i.e. Hurricane Katrina)
that draw funds that might have gone to
the arts
64
• Economic challenges that cause some shifting away from arts to basic needs
organizations reasoned that they served similar
age groups, so why compete for resources and
pay extra for overhead? The new, larger organization shares payroll, bookkeeping, and databases
and is in a better position to market classes and
other revenue-generating services to the largely
middle-class clientele for those classes. The two
organizations are also glad that they are no longer competing for donations. One of their funders
agrees: “I think they may be on the leading edge
of something that we will probably see more of
in the next 18 to 24 months…Mergers make a lot
of sense.”
• Increased pressure on schools to pass standardized tests, reducing schools’ focus on
the arts
• Aging of the population that forms
the core audience for traditional arts
programming
• Competition with other, often cheaper,
forms of entertainment
• Public has increasingly less leisure time, but
more ways to spend it
Wallace, Nicole. Joining Forces to Fight Poverty.
Chronicle of Philanthropy, January 25, 2007, Vol.
19, No. 7. (Electronic copy)
The author outlines the challenges for arts organizations that consider merging, and he recounts
an example of a well-publicized nonprofit arts
merger that was not a success: the merger of the
Jewish Museum San Francisco and the Magnus
Museum. Among the most successful arts mergers are those between advocacy organizations,
which exist to raise visibility of the arts and
to help the arts have a deeper impact on society (example cited: the merger of the Michigan
Association of Community Arts Agencies and
ArtServe Michigan). Other successes include arts
organizations that have similar missions and serve
similar stakeholders, but operate in different geographic areas, such as the 2004 merger of Young
Audiences of San Jose & Silicon Valley with Young
Audiences of the Bay Area to become Young
Audiences of Northern California.
Mercy Corps, an international aid and development organization in Portland, Oregon, has
merged several times in its 28-year history. It
recently merged again, this time with NetAid, a
New York charity that engages young people as
activists to raise awareness about global poverty
and health concerns. This merger arose out of
joint needs by both organizations: Mercy Corps
realized that it needed to focus more on educating young people about the realities of life in the
developing world. At the same time, NetAid was
seeking a way to broaden its reach and began
looking for organizations that would be able to
help the group reach more young people without
building a whole new network itself. The charities decided their goals were compatible, and the
merger process began. NetAid’s president led the
merger process and saw it through to completion,
then stepped down from her position to pursue
consulting work.
Tagami, Ty. “Two Nonprofits Team Up.” Atlanta
Journal-Constitution, November 27, 2008.
•d edition/2008/11/27/evnonprofit.html.
www.ajc.com/services/content/print
The consultant who helped facilitate that partnership noted that more nonprofit organizations are
showing an interest in mergers. Many, however,
are doing it too late, when they are at a point of
desperation, and the challenges are greater under
those circumstances. By contrast, the merger
noted above is an example of how merger can
be a tool to help organizations expand their reach
and impact.
This short article describes the merger between
Senior Connections and Life Enrichment Services,
two complementary Atlanta-area organizations that serve seniors. The former organization is absorbing the latter. This merger is largely
a result of the challenging economic times. The
65
Web Surfing
In 2008, The Lodestar Foundation announced
that it would offer a $250,000 Collaboration Prize
for the most effective nonprofit collaboration. In
March, 2008, the Foundation announced that the
award would be presented to two groups. The
Museum of Nature and Science (Dallas, TX) and
the YMCA and JCC of Greater Toledo (Toledo,
OH) each received checks for $125,000.
MAP for Nonprofits
www.mapfornonprofits.org
MAP has worked with client organizations, the
corporate community, foundations and nonprofit
associations to build a strong Minnesota nonprofit community. MAP for Nonprofits provides
high-value management consulting and services,
as well as board recruitment and training, to
large, medium and small nonprofit organizations
in the Twin Cities and beyond, helping nonprofit
clients to achieve their missions more effectively.
The website outlines the organization’s management consulting and services, classes and workshops, volunteer and board service opportunities,
and more.
Mission + Strategy = Social Value
www.missionplusstrategy.com
This website is the blog for Jean Butzen, a former
nonprofit CEO who, after 25 years of leadership,
now offers consulting services on values-driven
mergers, partnerships, and management for nonprofits. Her blogs provide lively, experienced commentary and advice on the merger process.
La Piana Consulting
www.lapiana.org
Forbes Funds & Tropman Reports
www.forbesfunds.org
La Piana Consulting is a nationally-known management consulting firm that helps nonprofits and
foundations effectively address the strategic issues
they face, and ultimately helps them become
stronger and more effective. Their founder, David
La Piana, is a leading expert on nonprofit management and governance and the author of monographs, reports, article, and two “workbooks”
that assist nonprofits with the merger process.
The firm’s research reports may be downloaded
free of charge from the website.
Under this website, one can find reports and
essays that are the results of Forbes-supported
studies by the Tropman Fund for Nonprofit
Research for the years 2002-2007. These are
downloadable free of charge, and cover topics
such as “Nonprofit Mergers: As Assessment of
Nonprofits’ Experiences with the Merger Process”
(2007 Report #2) and “A Generous Gift: The Value
of Nonprofit Organizations to Our Community”
(2005 Special Essay)
Mandel Center for Nonprofit Organizations at
Case Western University
www.case.edu/mandelcenter
The Lodestar Foundation
www.lodestarfoundation.org
This innovative foundation’s mission includes
“encourag[ing] and support[ing] collaborations,
consolidations, mergers and other long-term
cooperative activities among nonprofits working in the same area, and [encouraging] other
business practices, in order to increase efficiency
and eliminate duplication of efforts.” There are
numerous opportunities for in-depth reading
throughout the website. One example: the website’s “Merger” link takes the reader to summaries of Representative Collaboration Grants and
links for more detailed information on each.
The Mandel Center at Case Western offers one
of the nation’s most fully-developed programs in
nonprofit management. It also publishes the journal Nonprofit Management & Leadership. One
can search back issues of the journal and read
abstracts of selected articles. Case studies are also
downloadable free of charge.
66
Appendix 3
Full Bibliography
Books, Monographs, and Longer Documents
Angelica, Emil and Linda Hoskins. Fieldstone
Alliance Nonprofit Guide to Forming Alliances: Working Together to Achieve Mutual
Goals. St. Paul, MN: Fieldstone Alliance, 2005,
112 pp.
Kohm, Amelia and David La Piana. Strategic
Restructuring for Nonprofit Organizations:
Mergers, Integrations, and Alliances. Praeger
Press, 2003, 153 pp.
Kretzmann, John P. and John L. McKnight. Building Communities from the Inside Out: A Path
Toward Finding and Mobilizing a Community’s Assets. Evanston, IL: Center for Urban
Affairs and Policy Research, Neighborhood
Innovations Network, Northwestern University, 1993.
Arsenault, Jane. Forging Nonprofit Alliances.
San Francisco, CA: Jossey-Bass, 1998, 198 pp.
Bailey, Darlyne and Kelly McNally Koney. Strategic Alliances Among Health and Human
Services Organizations: From Affiliations to
Consolidations. Sage, Inc., 2000, 216 pp.
La Piana, David. Beyond Collaboration: Strategic Restructuring of Nonprofit Organizations.
San Francisco, CA: The James Irvine Foundation, 1997, 22 pp.
Davis, John Emmeus. Bridging the Organizational Divide: The Making of a Nonprofit
Merger. Burlington, VT: Burlington Associates in Community Development, LLP, 2002,
39 pp.
La Piana, David. Nonprofit Mergers: The Board’s
Responsibility to Consider the Unthinkable.
Washington, D.C.: National Center for Nonprofit Boards, 1994.
Dickmeyer, Louise C. No Risk—No Reward:
Mergers of Membership Associations and
Nonprofits (A Handbook to Help You Prepare
for the Complexity of the Process and Avoid
the Inherent Pitfalls). Andover, MN: Expert
Publishing, Inc., 2009.
La Piana, David. The Nonprofit Mergers Workbook Part I: The Leader’s Guide to Considering, Negotiating, and Executing a Merger
(Updated Edition). St. Paul: Fieldstone Alliance, 2000, 240 pp.
Emenhiser, Walgren King, Joffe, Penkert. Networks, Mergers, & Partnerships in a Managed
Care Environment. Child Welfare League of
America, 1998, 128 pp.
La Piana Associates. The Nonprofit Mergers
Workbook Part II: Unifying the Organization
After a Merger. St. Paul: Fieldstone Alliance,
2004, 230 pp. plus CD-ROM.
Haidet, Mark E., Thomas J. Kelley, and Paul D.
Nelson. A Legacy of Leadership and Service:
A History of Family Service, Inc. (Rev. ed.),
St. Paul,: MN, Ramsey County Historical Society, 2004, 213 pp.
McCormick, Dan H. Nonprofit Mergers: The
Power of Successful Partnerships. Gaithersburg, MD: Aspen Publishers, 2001, 170 pp.
McLaughlin, Thomas A. Nonprofit Mergers and
Alliances: A Strategic Planning Guide. New
York, NY: John Wiley & Sons, 1998, 256 pp.
67
McLaughlin, Thomas A. Seven Steps to a Successful Nonprofit Merger. Washington, DC:
National Center for Nonprofit Boards, 1996,
28 pp.
Journal Articles and Case Studies
Association for Enterprise Opportunity.
“Microenterprise Mergers: Industry Trends
Towards Scale” (3-part series). Association for
Enterprise Opportunity (AEO), AEO Exchange,
Part 1: Issue 5, Jan-Mar 2002; Part 2: Issue 6,
Apr-Jun 2002; Part 3: Issue 7, Jul-Sep 2002.
Mattessich, Paul W. and Barbara Monsey. Collaboration: What Makes It Work: A Review
of Research Literature on Factors Influencing
Successful Collaboration. St. Paul, MN: Fieldstone Alliance, 1992.
“Authoring the Book on Mergers: How Two
St. Paul Agencies Successfully Joined Their
Histories.” Alliance for Children and Families
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